New to BRRRR, How to Calculate ARV and Repair Costs?

[Hariharan Elavarasan]

Hi,

This is my first forum post on the history of the internet, but excited that its here at the start of real estate journey.

I wanted to begin my career using the BRRRR method, because I fortunately have access to a private money lender, and the area I am in has multiple MultiFamilyHomes that could use renovation. I'm learning more and more that I can't just pick a run-down property and have the BRRRR method work out. I'm currently trying the 70% rule using sq ft comps of nearby MFH that aren't as distressed. How do I more accurately calculate my ARV, and most importantly my repairs?

Thanks,

Hari (Future Millionaire)

[Rod Mendoza]

Hari, 

Following as I have the same exact question. Best wishes on this exciting new endeavor!

Sincerely, Rodrigo.

[Julian Colvard]

For single-family homes, you look at other homes within the same neighborhood that have sold over the past 3/6 months with the same bedroom/bathroom accounts, similar square footage, similar year built and a similar lot size.

from multi family homes, you compare using the income produced. You do this by using gross rent multiplier. Search “gross rent multiplier” on YouTube to see calculations.

[James French]

To get the ARV you have a few options. Talk to a real estate agent so they can provide you with comparable comps. The agent can also help you with figuring out what type of finishes that you would need to make the ARV work with the BRRRR. Make sure you are dealing with an agent that understands what you are doing and not just a first-time home buyer agent. You can also do all this yourself with doing a lot of research on the internet and being very realistic with the properties you are looking at and be very conservative on the price.

I feel this is the hardest part especially if you don't have a background in remodeling. You want to write down all the projects/task that you think you will be doing and keep breaking them down. That way you will have a price for each task. For example, interior paint $3k, new hardware on cabinets $500, flooring $2500. Alot of people will use some sort of a spreadsheet with all tasks, price, timeframe. This will also help you with a timeline for the remodel and how to structure the project that way you are doing everything in the right order. Yes, do it in the right order bc if not then there will be a lot of prep on the protecting the finishes. For example, don't install the flooring then paint the walls. Paint the walls first then install the flooring. The more you can break down the project to each task the easier it is for the price and the timeline. 

You got this! Good luck!

If you need further help DM me. I have been remodeling for almost 30 years.

[Garrett Crosby]

Hi @Hariharan Elavarasan - congrats on your first post known to the internet and mankind. Exciting ;) 

A couple quick pieces of advice in regards to ARV in the current global market (and the specific market you are doing this in).

For comps - I suggest you look no more than 3 months back for sold (and currently active) homes. The reason for this is that interest rates have really shaken up the market. I've also noticed that many specific markets have been hit harder than others.(The LA market vs. my out of state investments in Fayetteville, NC).

It's really important that you get a good gauge at what the market is doing in your specific area as recently as possible so that you don't fall into the "6 month comp trap". You just can't look 6 months back these days.  

Lastly, make sure your team is in place, dates are set and your goals are written out so that once you do get a home under contract, you don't waste time trying to fill holes that could have been filled earlier on in the process. In the same vein as a flip, time is money in this current market with BRRRR's. Having a team set with an agent, a lender, a contractor, a handyman, a property manager ahead of time will make a world of difference.

Wishing you the best of luck! Make that $$$

[Eliott Elias]

Be conservative with your ARV, use comps from 30 days our and active/pending properties to gauge the market. Rehab estimate is given by a contractor