I am a newbie investor in the Sacramento area who wants to use the BRRR strategy to build up my portfolio. Since I am a first time home buyer I am planning to get an FHA loan and put 3.5% down on my first Multi-Family house. I want to get a the FHA 203K loan so i can get some extra money to help me during the renovation process. Will the BRRR strategy work with a FHA 203K loan if i still follow the 70% rule? What are some of the tools you guys use to determine what the after repair value of the house will be because i feel like i am just guessing? Is there any advice or potential problems you see with my upcoming strategy. My goal is to try to save at least $24,000 for down payment & closing cost
Your problem may arise if you try to follow the 70% rule in Sacramento, it doesn't work well in most parts of California and I'd assume Sacramento would be similar. As far as determining ARV comps are king, if you want to put an ARV well above other comps you had better have a really good reason. However because you want to eventually rent the property (I'm assuming you are either looking at multifamily or a taking on roommates) ARV won't matter as much as if you were buying a flip.
Main problem with anything you try to buy off the MLS is that your FHA 203k offer is going to get thrown in the trash straight off the top.
Hate to be so blunt, but it's an EXTREMELY competitive market. Sold a fourplex last month, put it on the market on Friday and had five offers by Monday, all with at least 25% down conventional, and two cash offers.
It's not impossible, it's just going to take some patience. If you can source your own deal you'll have a lot more luck, but then your potential pool of properties to choose from is a whole lot smaller. Any seller with half a brain would hire someone like me to sell it above the asking price in less than a week rather than sell it off-market for a discount.
Welcome to Bigger Pockets.
@Aaron K. Thanks for your reply. So by comp do you mean something comparable in the same neighborhood? I would think ARV is still important when considering you can refinance later to a conventional loan and make cash on the difference. Or is it more of a take what you can get scenerio
You're right about the market being extremely competitive. I've seen some old beat up houses listed for mid 300k which I would never think about touching. But from time to time I've seen some houses low to mid 200k that might work.
Thank you! I've been lurking for a while, but now I want to get more serious about planning my next steps
@Adonias Dawit yes comps are similar properties, and if you are planning on refinancing in the near future then you might want to pay a bit more attention to ARV, but regardless it will likely still be hard to find something that meets the 70% rule.
@Aaron K. so theoretically this strategy should work? I understand that I will be really hard to find a property that will fit those numbers. Have you refinanced a loan before? Any difficulties with that?
@Adonias Dawit you plan would theoretically work, however my suspicion is that it is close to impossible to find a property in Sacramento that meets the 70% rule and even if you did there would be heavy competition from cash buyers meaning your FHA 203k would probably not be first choice. The main thing to be aware of with financing are the timelines and being able to afford a second mortgage, if you can't do either of those things you may either have to stay in the property or sell it before you can move.