So, I've recently sold my first rental property (a SFR on the fringe of the Kansas City metro that came-to-be as my family's first residence) and I am now looking to take my first step into BRRRR. What's the right ratio for risk on repairs? Meaning - I've been browsing Auction.com and Hubzu.com for potential inventory and am running dark on estimating rehab costs.
Considering BRRRR: Purchase Price = (ARV * 70%) - Rehab Costs; What's a target ARV-to-repair ratio when considering bids? Is there any relation between the two?
Some number I used last night, when considering a Hard Money loan show about 7.56% of ARV could be applied in rehab costs. Meaning: with an ARV of $100,000 I could consider about $7,500 to go towards fixing up the property.
To me, this seems like a low bar estimate, what do you think?
There is no ratio to figure out what repair costs are - they are what they are.
Your best option is to walk through the house and make a list and add up the numbers.
When buying sight unseen, take a drive by to get a rough guess on what the inside will look like compared to the outside. Google the address, many times we find the house was recently listed for sale or rent with photos so we can guess at interior repairs. Make a list of the most likely repairs and the costs.
Sometimes you make a killer deal and get a house that needs way less in repairs. Sometimes well the repairs are way worse and you lose money, but it is an overall strategy of buying over time so the profits even out.
But if you really want to know, exact numbers, then find another source of houses because on the courthouse steps, most of the time it is just a guess - out of about 30 houses we have bought at auction, we knew what the inside looked like on 2 - one had been listed the previous week and the other we had tried to buy as a short sale prior to the auction.
What @Kim Tucker said!!
I do use some $/sq ft estimates to help with basic things when I'm estimating a lead I haven't seen. But I always walk the property to verify.
For a rental, you can be fairly safe at $10-12 per square foot for your basic upgrades inside. That will get you paint inside and out, carpet, countertops, some bathroom touch-ups, and possibly windows. If you don't need windows that number drops quite a bit.
But you'll want to walk it to see if the electrical/plumbing need major upgrading, what the roof is like, if the cabinets are salvageable, or if you need a furnace/ac/water heater.
I'd be happy to connect you with some of the crews I use for the work/prices above. Shoot me an email if you have something in mind.