Running the BRRRR Equation Numbers and No Properties Seem to Work

53 Replies

Hi all,

Currently looking into getting our first BRRRR property here in Utah. I have been looking for properties that fit the script. Have found some pretty beat up properties that need a lot of TLC.

However, when I place them into the pre-purchase equation of (ARV *0.7) - repairs = Max purchase price none of them are even coming close to where they would need to be.

Even with adding bedrooms, bathrooms, cosmetics, etc. it doesn't seem that any of those renovations would even get us close to the price we would need the new value to be.

Obviously, the Utah market is booming and the current sell price of these homes are too high. But, I am looking into the bottom-of-the-barrel properties that have the ability to be improved and they still don't work.

I have been looking on AllUtahHomes.com, AllUtahListings.com, KSL.com, etc.

Does anyone have any advice here? Do I need to be looking elsewhere on different listings? If so, where could I look for the proper properties?

Is it just a matter of the Utah market being too inflated and I need to look elsewhere? Out of state? More remote locations in Utah? (I have been looking between Sandy to Spanish Fork.) 

I don't think going out of state at this point would be wise because I am just starting and need to get experience in areas am more familiar with here.

Any and all advice would be much appreciated.

Thanks!

@Mitch Casey this is one of the big problems that faces young investors when they first start learning about the possible investment strategies. BP really pushes the "BRRRR" and for good reason. The problem, though, is to truly get ALL of your money back you have to get a steal. This IS possible, but most people that get these types of deals are experienced investors who have cash to make the purchase, find the deal off market, and then have the banking relationships to pull of the refinance.

This is not to say that you cannot successfully start off with this method. I have a client who is about to take down a 3 unit here in the Berwyn market where I work. He will not get all of his money back when he does the refinance, but he will walk into around 50-60k in equity on day one. Not a bad day at the office!

Like @John Warren said, you have to find a great deal. Same as if you were going to flip a house. Most of the time, deals that people can just google, and that are listed publicly won't be good enough deals for the BRRRR method to work. You'd usually have to find something off market, or see something in a deal avail publicly that others didnt notice. (Ability to add another bedroom, or force appreciation for really cheap)

@Mitch Casey

Talk of how fantastic BRRRR is a tactic to sell books and increase Pro memberships on BP.

Example: you are out there trying to find a deal to make it work right now....its 99% harder than they make it seem.

Starting out I would recommend avoiding BRRRR, mortgages, refinances...etc.. and try finding an off market deal for cash, sheriff's sales or owner financing deals, maybe even a land deal.

Maybe try BRRRR on deal number 8 or something...

Remember that though the idea is to get all your money back in a BRRRR, it's not imperative. I've done a few of them so far and each has been profitable and cash flowed, even though I couldn't get all the money out after a refi.

I’m happy with them - I also know that I’m not going to scale to 100 properties with $0 investment too :)

If I would have used the true BRRRR principle on my latest property, I would have never been able to obtain it. ARV*.7-repairs, I would have been laughed out of the deal. It ended up being on my end roughly ARV*.7 + .70%repairs for me to get the property. Luckily the property was in decent shape and only needed about $13k in repairs. I left roughly $8k in the deal and I am cash flowing after the refi about $400/month.

The $8k cost me about $40/month that costs me extra that I used a HELOC to pay for the whole project.

Originally posted by @Mark Fries :

@Mitch Casey

Talk of how fantastic BRRRR is a tactic to sell books and increase Pro memberships on BP.

Example: you are out there trying to find a deal to make it work right now....its 99% harder than they make it seem.

Starting out I would recommend avoiding BRRRR, mortgages, refinances...etc.. and try finding an off market deal for cash, sheriff's sales or owner financing deals, maybe even a land deal.

Maybe try BRRRR on deal number 8 or something...

the author of the book is working your market and buying low value homes there..  tell me how that is going to go for someone living in CA and buying a 20k beater in Jacksonville then trying to rehab it from CA..  this strategy while people think its new we did tons of them in the 2000 to 2008 time frame.. that's how most investment properties were bought through turn key companies. but then you had the turn key company making sure the rehab got done.. not someone in CA trying to trust billy bob contractor .. I know you know  !!! how risky that play is.

As for .07 minus rehab on the west coast that is a unicorn.. that only works in areas were you have a lot of distressed assets or more homes than peeps to put into them 

Originally posted by @Mark Fries :

@Mitch Casey

Talk of how fantastic BRRRR is a tactic to sell books and increase Pro memberships on BP.

Example: you are out there trying to find a deal to make it work right now....its 99% harder than they make it seem.

Starting out I would recommend avoiding BRRRR, mortgages, refinances...etc.. and try finding an off market deal for cash, sheriff's sales or owner financing deals, maybe even a land deal.

Maybe try BRRRR on deal number 8 or something...

 Yup, well said Mark. In the beginning especially your first deal.  Look for something easy. The most you want to deal with is new floors and paint.  Buy it make some minor changes and get it rented out.  Don't try to hit a home run your first swing. 

1. The deals are very hard to find. Not like these BRRRR deals show up every day. Maybe 1 every 3-5 months that I would be interested in.

2. If you find it, doesn't guarantee you will get the deal.  Unless you know how to acquire it and close it. You probably won't get it and have wasted the 5 months of searching.

3. It's not easy. Gotta know what you are doing and it takes a lot of time. Most think I hire a GC and a PM and they will do everything. Nope, not the case. 

There are some great stories here on BP about people hitting some home runs but you never hear about the stories of everyone striking out or quitting bc they can't find and close a deal.  Swing for a base hit, get on base, get some experience and try for the double next time. You can make a lot of money just getting on base. 

@John Warren  

@John Warren makes total sense. I'm most definitely not opposed to leaving a few thousand dollars in a property if I know that rent can pay that off in a quick manner. 

Like anyone, I am just wanting to leave as little capital in the properties as possible thus enabling me to obtain more properties quickly. 

I appreciate the response and feedback!

@Daniel Kong most definitely. It's like what they say, you make your money when you buy. 

That's good insight on the listing and properties most others can see. I will start looking into other methods of finding properties that aren't more publicly known.

Do you have any suggestions/methods that you have found to work well for you for this?

@Mark Fries most definitely, as everything as an underlying incentive right? haha

Got it. That's a great idea. Any best practice tips for finding those types of properties?

@Mike McCarthy that's a great point! I definitely agree and am not opposed to not getting all of my cash back out especially if the cash flow pays it back in a respectable timeline. 

It just comes down to leaving as little as possible in right?

@Justin K. this is also great insight! I really appreciate it. This is definitely a hybrid mindset I will be taking into the future property assessments! 

I would be totally for hitting those numbers you discussed above because you would be getting back your investment in roughly 22 months while retaining the home and future cash flow! That's great and definitely what I would be hoping for.

@Jay Hinrichs totally agree! Definitely don't want to dabble in the out-of-state game until we have more systems in place and experience! I was just curious if that was one of the only options for a market like ours.

But, after more research and discussion, I just need to get on lists and in contact with those who have properties not readily available to the public. 

@Frank Wong very good point. That is definitely what we are looking for are those projects that require more cosmetic upgrades than anything. That is just where I was having a hard time seeing the value of those upgrades helping us to meet the new ARV we needed to be at.

1. Good point as well. Will definitely keep looking and try and make connections with those who can forward me properties that aren't as publicly available.

2. Most definitely. We found two properties that would be pretty good this morning and they both already have multiple offers. So, seems that there are quite a few individuals trying to achieve the same strategy in this market.

3. Noted. Will most definitely look to get some easier properties to get our feet wet.

Much appreciated with the feedback. We will look to get a few singles before we swing for the fences!

@Mitch Casey

I would suggest totally reversing your thought process for realestate...at least the allocation aspect.

Call your county about tax sales, sheriff sales, drive for dollars, mail out 10 letters a week to distressed properties, cold call owners about selling and possible owner finance...etc

Follow the flippers. the BRRRR strategy is essentially a flip, but instead of selling it, you are keeping it. So whereever flipping is possible, then the BRRRR strategy should also be possible.

Originally posted by @Russell Brazil :

Follow the flippers. the BRRRR strategy is essentially a flip, but instead of selling it, you are keeping it. So whereever flipping is possible, then the BRRRR strategy should also be possible.

 out our way .07  and minus rehab costs is not even close to possible.  that's the issue.. there are not boarded up houses all over the place..  my targets are extreme hoarder houses that many times we demo and build new.. you can make some decent money on those.

Originally posted by @Jay Hinrichs :
Originally posted by @Russell Brazil:

Follow the flippers. the BRRRR strategy is essentially a flip, but instead of selling it, you are keeping it. So whereever flipping is possible, then the BRRRR strategy should also be possible.

 out our way .07  and minus rehab costs is not even close to possible.  that's the issue.. there are not boarded up houses all over the place..  my targets are extreme hoarder houses that many times we demo and build new.. you can make some decent money on those.

 I think my hard money friends are underwriting at 80% minus repairs in my market.

Originally posted by @Russell Brazil :
Originally posted by @Jay Hinrichs:
Originally posted by @Russell Brazil:

Follow the flippers. the BRRRR strategy is essentially a flip, but instead of selling it, you are keeping it. So whereever flipping is possible, then the BRRRR strategy should also be possible.

 out our way .07  and minus rehab costs is not even close to possible.  that's the issue.. there are not boarded up houses all over the place..  my targets are extreme hoarder houses that many times we demo and build new.. you can make some decent money on those.

 I think my hard money friends are underwriting at 80% minus repairs in my market.

ya out here your lucky to get 90% too much money chasing too few deals.. don't know about Salt lake area but that area is strong as well. its why many of the rehab flippers I used to fund have actually move to building new homes now again these are not for rental purposes no one buys or very few buy SFRs in our market for a rental.. they buy duplex four plex and mf.. those are priced at cap rates and make sense.. SFR;s all go to owner occs so make zero sense as rentals.

@Mark Fries great insight. I really appreciate it. I'll start practicing those strategies and hope to find some opportunities with it.

Appreciate you taking the time to respond and send advice.

@Jay Hinrichs yes this is the issue as I'm sure you are seeing it in OR and NV (west coast locations). As for the building new homes, definitely wish this was a feasible option for me because I see the potential in the SLC valley, but again just starting and restricted in other channels.

However, I definitely am looking into the multi-family unit properties because the upside with those here in SLC make a lot of sense.

Appreciate you taking the time to respond and for your feedback.

@Mitch Casey the market is crazy right now.  When a property that fits that type of criteria hits the market they typically have multiple offers.  I actually know of one in Orem right now that is decent but you can look for months around here and  The competition is so fierce it’s really hard to secure one. Are you watching the Utah Facebook homes for sale pages? Are you set up on hotsheets to  see new listings within hours of being published? 

@Mitch Casey

In a hot market the 70% rule will not work. As @Jay Hinrichs said that's a unicorn.

70% is based on a rehabber making 20% profit, 3 months days on the market (DOM) and you pay about 2% in closing costs. In hot markets, which tend to be more expensive (above $200K), 80% will work better because you have 30 days or less DOM and you're paying closer to 1% in closing cost.

80% x ARV - Repairs = Maximum offer

When you refi, you get 75% so you still have 5% in the property but that's OK because at least you will have a property (vs. now when you can't get any).

Originally posted by @Michael Ealy :

@Mitch Casey

In a hot market the 70% rule will not work. As @Jay Hinrichs said that's a unicorn.

70% is based on a rehabber making 20% profit, 3 months days on the market (DOM) and you pay about 2% in closing costs. In hot markets, which tend to be more expensive (above $200K), 80% will work better because you have 30 days or less DOM and you're paying closer to 1% in closing cost.

80% x ARV - Repairs = Maximum offer

When you refi, you get 75% so you still have 5% in the property but that's OK because at least you will have a property (vs. now when you can't get any).

That makes a lot more sense. Definitely helpful! So, I need to aim more for the 80% rule in a market like this right now?

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