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Logan Lehmkuhl
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First brrrr property

Logan Lehmkuhl
Posted Dec 10 2022, 21:18

I currently own 1 single family rental. A friend and I are getting ready to do our first brrrr deal. We have talked with a private money lender and CPA in advance. We are looking to buy a tiny 660 sq foot house as our first one. Being next to a military base rent is in high demand. We also are going to do most if not all the work ourselves. When estimating rehab costs, we came in around 25k which seemed high to me. Does anyone have experience doing their own rehab vs hiring it out? Also the comps in the area are limited due to their not being very many properties that are newly rehabbed or have sold recently. We want to have none of our own money into this deal, pretty positive I can rent for 750/month is that a close estimate to the ARV being 75k based on the 1% rule. Thanks to any who wish to help this young new investor.

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Garrett Christensen
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  • Orem, UT
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Garrett Christensen
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Replied Dec 10 2022, 21:25

I do a lot of work myself and have also hired some out. As a very general rule a thumb it's about half the cost when you do it yourself. I'm not sure I understood completely the last bit. It sounds like you're basing the ARV off the 1% rule. Correct me if I'm wrong in that. The ARV should always be done with comps if possible, even if it's using the rent ratio, but never assume you'll hit 1%. In my market, for example, a great deal is only 0.7%. Again, that might not have been what you were saying, so feel free to correct me.

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Logan Lehmkuhl
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Logan Lehmkuhl
Replied Dec 10 2022, 22:17
Quote from @Garrett Christensen:

I do a lot of work myself and have also hired some out. As a very general rule a thumb it's about half the cost when you do it yourself. I'm not sure I understood completely the last bit. It sounds like you're basing the ARV off the 1% rule. Correct me if I'm wrong in that. The ARV should always be done with comps if possible, even if it's using the rent ratio, but never assume you'll hit 1%. In my market, for example, a great deal is only 0.7%. Again, that might not have been what you were saying, so feel free to correct me.

Yes that is what I was saying. The issue is I’m having trouble finding accurate comps due to their not being very many properties recently sold, or none that have been rehabbed that match the layout and sq footage of this house. Thanks you for the insight on the 1% rule that was very helpful! 
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Nathan Gesner
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Nathan Gesner
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ModeratorReplied Dec 11 2022, 05:31
Quote from @Garrett Christensen:

I do a lot of work myself and have also hired some out. As a very general rule a thumb it's about half the cost when you do it yourself. I'm not sure I understood completely the last bit. It sounds like you're basing the ARV off the 1% rule. Correct me if I'm wrong in that. The ARV should always be done with comps if possible, even if it's using the rent ratio, but never assume you'll hit 1%. In my market, for example, a great deal is only 0.7%. Again, that might not have been what you were saying, so feel free to correct me.


We need more information. $25,000 rehab depends on what you're doing. Replacing flooring and paint? Renovating the kitchen and bathroom? Needs a new roof?

We also can't tell if this meets the 1% rule or if it's a sound investment because you haven't told us the purchase price. We need purchase price, all on-going expenses, and rent rate.

I've renovated a couple places. My last renovation took me six months because I worked on it in my spare time, which I don't have a lot of. A professional could have finished it in a few weeks. If I calculate my time and the five months of lost rent, I probably could have hired a professional and it would have saved me a lot of time and not cost much more.

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Scott Seel
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Scott Seel
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Replied Dec 11 2022, 06:19

1% rule is not really in play anymore with interest rates where they are. Drop me a message and I’d be happy to help with comps or anything else.

Scott

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Robin Simon#1 Private Lending & Conventional Mortgage Advice Contributor
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Robin Simon#1 Private Lending & Conventional Mortgage Advice Contributor
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Replied Dec 11 2022, 09:30
Quote from @Scott Seel:

1% rule is not really in play anymore with interest rates where they are. Drop me a message and I’d be happy to help with comps or anything else.

Scott


 At this low value / more tertiary market, I think the 1% rule could still work, but obviously would need more info

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Nate Sanow
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Nate Sanow
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Replied Dec 11 2022, 09:43

Regarding DIY, only DIY if you really feel up for it. It can be more expensive than hiring stuff out. 

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Thomas Higgins
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Thomas Higgins
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Replied Dec 13 2022, 16:40

My thoughts in bold.

I currently own 1 single family rental - Awesome great way to start wish I had done it this way. Started with a 23 unit... life happens fast. 

We are looking to buy a tiny 660 sq foot house as our first one - small is good as long as the market supports this type of property.

Being next to a military base rent is in high demand. - Who is your end buyer or renter? Is it a family area or do people live off base in rentals? I always worry about rentals that depend on one industry or facility. Better to invest in an area that has a multitude of drivers. If the military move their base are you still good?

We also are going to do most if not all the work ourselves. - I wouldn't recommend this. Hire professionals to be professionals and spend your time sourcing deals that work at a good basis. 

When estimating rehab costs, we came in around 25k which seemed high to me - so much goes into it. Share your budget and location and I can opine. 

Does anyone have experience doing their own rehab vs hiring it out? Done both. Hire out. 

Also the comps in the area are limited due to their not being very many properties that are newly rehabbed or have sold recently - this is a red flag or strike one in my book. Maybe for your 5th deal you can go to where others have not gone but better to play it safe. 

We want to have none of our own money into this deal, pretty positive I can rent for 750/month is that a close estimate to the ARV being 75k based on the 1% rule. -This seems a little confusing. Why don't you want your money in the deal? 100% LTV at what intrest rate? I would recomend you target 65% LTV at your ARV. 

Good luck!  

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Jim Wellington
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Jim Wellington
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Replied Dec 13 2022, 17:06

An important consideration in whether to perform the rehab work yourself is how much time are you losing by doing the renovations yourself versus hiring it out. 

If it takes you 3 months longer than a professional then you’re not saving any money. In fact, depending on the rental rate you maybe costing yourself money. When I started, I had a corporate job and I did all my own repairs during the evenings and weekends. I’m glad I did.  I learned a lot and it helped me better evaluate contractors and costs when I was ready to hire. As my “free” time become less available it’s made much more sense to hire things out to professionals. They get it done faster and it looks better. I’ve found my time is better spent doing the things I’m really really good at rather than fumbling with things that I’m learning as I go. 

It’s balancing act when you first start out.  In some cases it maybe advantageous to be a weekend warrior. However with time and scale you’ll most likely want to hire things out. 

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Chris Levarek
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Chris Levarek
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Replied Dec 13 2022, 18:23

I've spent 25k on 650sq ft. It was a 1940 duplex, each side was close to 25k.  Just depends on what you doing as mentioned.