Rental Property Investor · New York City, NY · Member since 2020 · 6 posts · 3 votes
I'm in the process of closing my first rental it's a solid single family but does require some rehabilitation. (New roof and cosmetic inside) The question or problem I'm facing is during negotiations I did not analyze the cost of rehab correct, the ARV I assumed will be significant smaller than I projected. Now the cost of the home is more than I projected. I'm possibly going to be in the negative depending on cost of rehab from initial acquisition. What is the best move that I can play to makes this work?
Rental Property Investor · Columbus, GA · Member since 2020 · 21 posts · 18 votes
5y
James,
I feel like your situation happens more than not. I recommend completing as many cosmetic repairs as you can before hiring a handyman or contractor. This may help you save a little. Did you pay cash for the home? Will the ARV be enough for the refinance to get your money back? If not, I would rent it out as soon as possible, and hopefully you cash flow well. After your mortgage is paid down, from the rental income, do the refi to get your cash out of it.
To make you feel a little better, I just closed on an investment property last week and the cosmetics are costing me more than expected too. I didn't buy it as a BRRRR tho, just a buy and hold for cash flow, but we are putting some money into it for better eye appeal.
Rental Property Investor · New York City, NY · Member since 2020 · 6 posts · 3 votes
5y
@David Zeek I appreciate your feedback this is an entry home to the real estate world and market i am in. The feedback you gave is exactly what my brain was scratching for with so much information coming in I couldn’t put any thoughts together.
Investor · Cincinnati, OH · Member since 2018 · 304 posts · 185 votes
5y
1 option is to back out... is that something you are considering? Of course depends on where you are in the process (ie does your accepted offer allow backing out per inspection or appraisal?). If you are past the inspection and appraisal, you could technically back out before closing BUT that doesn't look good!!
The other option is to reduce the projected repair cost as much as possible, and focus on increasing the ARV as much as possible. Investigate how appraisers in your area value houses and use that to your advantage... sq ft, bd / ba count, materials used in kitchen or bath, etc ... I haven't done this myself but are all examples I've hear with success in the forums depending on how appraisals work in your area. For example, if home values increase greatly just by having luxury tile in the bathrooms, do that!
Is there something creative you can do with the property to have higher ARV? Can you target finding cheaper / used materials on FB marketplace, craigslist?
Rental Property Investor · New York City, NY · Member since 2020 · 6 posts · 3 votes
5y
@Andrew Powers thank you for ur feedback. So the inspection was done everything disclosed was marginally good and the appraisal is next I need someone to pick up the order and make that appointment. Now depending on how the property gets appraised for depends greatly on expected cost. Now increasing the ARV is definitely what I'm looking into and why this is the question. Looking further into how to increase ARV effectively is definitely going to be the next step for me.