BRRRR strategy - stuck on B

25 Replies

Be careful getting a bunch of bids and not pulling the trigger. You will burn contractors out and get blacklisted. 

What is your criteria for your BRRRR?

How do you know when a property meets that criteria or is at least close?

Everything comes before making an offer. I'm 100% sure I want the property before talking numbers. The only thing stopping me is negotiation or a natural disaster. 

I don't know what $25K gets you in your market but in my mine it's nothing. Literally zero deals. You could fund the rehab for a small SFR but that's about it.

Originally posted by @Ari Dubinsky :

"I'm 100% sure I want the property before talking numbers"
Any experience with something unexpected on the property, after you bought?

 Ideally not. Proper inspections should limit anything unexpected showing up after the purchase. But by due diligence I would get ahold of the different county agencies for checking for back taxes, liens and so on.

@Ari Dubinsky , What area are you investing in that you expect to find houses that can be bought and rehabbed for $25k? I can do them for $35-45k in my area and I thought that was cheap. 

$100 is a pretty small cash-flow. I would be aiming for $200 or more. One reason is that after you get some rentals up and running lenders will look at your debt service ratio. You will undoubtedly have some growing pains and bad tenants. With so few rentals, if your margins are close it may not look like you are doing well enough to get financing on your subsequent deals. So, I would aim higher for your cash flow so that you have some wiggle room. 

When you finish your rehab on a $25k (purchase and rehab) property what do you expect it to appraise for?

@Jaron Walling @Kevin Sobilo

Ari said criteria is that "25K remains in the deal AFTER refinance. I think you guys read it as "acquisition and rehab has to be less than $25K."

@Ari Dubinsky

Your cash remaining in the deal needs to come down or your cash flow metric needs to increase. At your minimum criteria, you are getting a 4.8% annual cash on cash return which is pretty dismal for the amount of work and risk you are taking on. I think you need to add to your repertoire of buying strategies. Go network and the opportunities will come.

Thank you @Todd Rasmussen . You are correct I misread that. 

@Ari Dubinsky , I think ideally you should have $0 or LESS in a deal after refinancing and have decent cash flow. A good deal for me allows me to refinance out $8-12k MORE than I have invested and cash flow about $200 per month over and above expenses, cap ex, vacancy, etc.

@Ari Dubinsky   You can't expect the unexpected but if you're buying distressed properties you'll find it. For the rehab I budget an extra 10% and cross my fingers. I don't touch a house with major roof issues (like collapsing), foundation, or fire damage. I'd love to get to that level someday. 

"I think ideally you should have $0 or LESS in a deal after refinancing and have decent cash flow. A good deal for me allows me to refinance out $8-12k MORE than I have invested"

@Kevin Sobilo this sounds like a fantasy BRRRR-investors preach but rarely materializes. You must be buying properties that are 80% under ARV (does this market even exist??), or your adding some serious equity to the property during rehab. Either way, predicting $0 down offers a buffer I would be comfortable in moving forward with on almost any deal xD

Ari, objectively, I don't think you're clear enough on your criteria and that may be part of your problem. 

$25k left IN the deal after rehab and refi is not a healthy criteria. 

The purpose of the BRRRR is to leave as little cash in the deal as possible OR having significant COC returns because of it. Deals with significant equity AND significant ($250 per month net and above) aren't super common but they are out there.

Your criteria needs to be clearer.

@Ari Dubinsky , my last completed BRRRR I bought for $10k, paid some back taxes and sewer bills, then rehabbed it. I was all-in (purchase and rehab) for about $35k. The house appraised for I believe $65k and I was able to refi out about $48k or so.

Here is a link to info from when I rented it out. I'm getting $880/month.

So, the goals I was talking about are not pie in the sky. They are doable. Not every deal will be quite this good, but this isn't a super rare find either.

@Ari Dubinsky - I've got one super easy tip if you are stuck on finding the right property: partner with another experienced investor in the area.

Experienced and producing investors have properties rolling off their shoulders, you just need to be there to catch them.

Find an savy investor in the area and see if you can provide value to him/her for free. Your earning will come in the way of opportunities and education.

@Ernesto Hernandez

I would have a problem leaving 25k in a deal over a million ( say a mid grade 8-10 unit), but I expect your right in that the OP is working with smaller numbers then that.

@Ari Dubinsky if you're having trouble with knowing what a good deal is you may just have to sit down for an hour a day and analyze those markets you're trying to invest in. It's tough to know a good deal when you see one if you yourself aren't comfortable with the numbers.

I just got the appraisal on the last R of my first deal this week. It came in $50k lower than anticipated which took me from getting $15k more out than I put in to leaving $20k in. I'm not too worried about it since it's a by the room student rental with a $3500/month gross rent. The smaller note will help me cash flow more than I had anticipated though. Shaping up to be a $1450/mo cashflow.