Questions About BRRRR Strategy

5 Replies

After watching this week's BRRRR webinar, I'd like to get practice utilizing the BRRRR calculator with property for sale in my area. Here are my questions:

-How do you estimate what the rehab costs will be? How on earth is someone like me with no experience fixing anything supposed to know that?

-How do you estimate what the house will be worth once the rehab is finished? I have no idea how to calculate what repairs/updates are actually worth to buyers.

-Is figuring out what amount to charge for rent as simple as going on craigslist and the like to see what landlords are charging for similar spaces in your area?

-Dumb question, but if I use an FHA loan and live in the duplex as opposed to using a private lender, do I still need to refinance for the BRRRR strategy to work? Aside from paying off a short-term private loan that's likely high on interest, what is the point in refinancing?

Thanks in advance,

Valerie

1. Experience or research, their is a book on this site you can find that covers how to estimate. Alternatively you can get contractors to walk the property with you and get a few estimates... You may have to pay a little for this depending on the contractor.

2. You research all the houses that have sold recently I that area, consider the level of finishes and the dollar per square foot.. How yours will compare and arrive at a price. Alternatively if you build out a team... One of those people would be a real estate agent. They do this all the time when figuring out a market value sell price for a home.

3. Craigslist, hotpads, rent O meter, go visit competitive rentals etc...

Bonus question - most the homes you would use BRRR don't qualify for FHA.. FHA is typically a house that is already livable... BRRR is typically buying a depreciated house, creating equity though rehab, and refinancing to get your working Capitol back.

Hi Valerie,

Here is how I would go about this...

1) Estimating rehab costs: J. Scott has an excellent book that everyone recommends (helpfully titled... The Book on estimating rehab costs! lol) If you are serious about getting into BRRRR, you'll want to buy it (o R something similar). Networking with rehabbers and investors in your area is also a good way to learn what the norm/expectations are for amenities and finishes and how costs run in your market.

2) Estimating after-repair value: The best and most accuratr way to do this is to get a good real estate agent on board and ask them to run comps on rehabbed houses just like yours. Alternatively, you can check what online sites estimate is the ARV- Zillow does that (though it can be wildly inaccurate). There is also a website called www.eppraisal.com. I have not used it and am not sure how accurate it is, but many people use it.

4) That's the simplest way, and it's pretty accurate! You can use www.rentometer.com, too- they will allow you to check 10 addresses for free.

5) Yes, it may still be worth it to refi your FHA loan. If the value of the home after you repair it jumps quite a bit, a refi allows you to pull out cash to use on your next property. After all, the last R in the BRRRR stategy is "repeat"!

@Brian Faulkner and @Patsy Waldron , thank you for the answers!

And great important point Brian; I totally spaced out on remembering that FHA loans come with serious property inspections that likely wouldn't approve a place in need of BRRRR improvements. Would a 203K loan likely make more sense here?

Patsy, thanks for listing the resources. I'll be sure to check them out. Happy there's a useful book on rehab costs, and even happier to be reminded there are people (contractors, real estate agents, experienced investors) who I could turn to for help, even if it comes at a bit of a cost. As for my last question, I knew I was missing something obvious with regard to the refi thing. Thanks for helping me get it!

Enjoy the rest of your Sunday!

203k loan could be used to create equity in a distressed property yes... However this comes with a whole other set of difficulties and challenges... The 203k process isn't easy, usually only approved contractors from lender... Their costs maybe higher.. Etc... Not saying it can't be done, but if you are just starting out its not the easiest path.

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