Why your BRRR is going to lose money
Top ten reasons you will lose money on your first BRRRR. This list has been pulled directly from the school of hard knocks
Generally speaking and based on NY building code
1. You think the cheapest house has the most margin
2. You don’t understand the permit process and will do some work that will require a permit and have to undue it later when an inspector catches you.
3. You don’t understand asbestos and demo work. You will find out later when a test should have been done. There will be pain.
4. You can’t see knob and tube wiring when you open a wall. But the inspector can.
5. You think chipping paint on the interior and exterior of a home built before 1978 is no big deal and you will sand it down and repaint it
6. You got a quote on all the apartments to get the place rent ready and missed all the mechanicals
7. You didn’t see any reason to replace all the plumbing, and you don’t know the difference between a copper, lead, and galvanized main line.
8. You didn't know that once you start your BRRRR and an inspector catches wind, you need to update every mechanical system and you have to do it in the proper order. Remember that knob and tube you couldn't identity???
9. You will underestimate the rehab by as much as 50% from the financial side and the time side.
10. My favorite one you will finally find a contractor that can do the work at 65-75% of the cost of your other three quotes. This will be the last happy day of your entire BRRRR.
How to avoid all of this? Traditional financing, light value adds where you leave the equity in the property, and you save for another 7 years to get your second property, and on, and on.
Real estate is a slow long play. People starting with the BRRRR mentality have the wrong mindset from the start.
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