The 50% Rule on a BRRRR Project. Do or Die?

Question

Hello,

I have never done a BRRRR before. I am looking forward to it, but have yet to find a deal so far. However, I have been using the BP BRRRR calculator tool for some offers I have made, and my question for the experienced BRRRR investors is this:

If you rehab the property to the point where almost everything is new (roof, kitchen, baths, HVAC, electric, etc), why do you still need to factor in 50% of the rent as going towards expenses if you don't expect any? I get there are some things like yard maintenance, and I know there are unforeseen expenses that can arise, but is this mostly for putting away $$$ for future expenses? Or is it more of an extra measure used to be more confident in a property's ability to cash flow?

Where I live, many investors flip homes. However, the houses being flipping in this market would be extremely hard to rent using the 1% rule once you get over the $90k ARV mark, which makes the 50% rule hard to meet with many of the houses renovated.

Thanks for your time and thoughts!

Nicholas L. · Answer

@Jake Lilly I think the short answer to your question is... you're right.  If you are going to buy a property as a BRRRR you will generally be able to have a much more detailed, much more accurate estimate of expenses, especially in the short term (5-10 years).  The 50% rule is just a screening rule of thumb.  If you're evaluating an actual BRRRR you should have very, very specific numbers you're working with.

With that said, you said "if you don't expect any."  But there won't be none... there are always going to be expenses and repairs.  But if you have a brand new roof, a brand new water heater, etc. then you shouldn't have to replace those in the first few years after owning.