Linear Real Estate Markets in Colorado
Colorado may be a future destination in the upcoming years. Anyone know which cities would be considered "linear" real estate markets and whether the BRRRR method would be a viable option in that location? Also, any idea why there are so many homes being auctioned rather than sold by owner or agent?
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There are lots of ways to add value to a property. Finding a beat-down fixer-upper and doing the rehab work is one of the more common ways. You could also increase the square footage or add a bedroom (maybe finish a basement, convert a sunroom into living space, convert a dining room into a bedroom, or convert a garage into living space). Depending on the local market that can add huge value to a property without rehabbing every part. Usually converting a 2 bed property to a 3 bed adds a ton of value. 3 to 4 less so but still significant depending on the neighborhood.
Any property in any location can work as a BRRR if you can buy it right. Rough condition or untapped potential may be the reason you get a good deal. Maybe the sellers are under pressure to sell and you can make the transaction convenient for the. At the end of the day, if you are trying to BRRR you need to add value and it doesn't make much difference how.
If you are trying to pull as much money out of the property with the refinance as possible (and I assume that you are) your price point can make a huge difference. For example (with simplified numbers):
If you can buy a property for $50k, put $50k into, and end up with a property that will appraise for $150k, you should be able to refinance and pull all your money out.
If you buy a property for $450k, put $50k into it, and end up with a property that appraises for $550k you won't be able to pull all your money out.
In both cases you spent $50k to add $100k in value, but if you refinance for 70% LTV in the first case you've invested $100k and you can borrow $105k, and in the second you've invested $500k and can only borrow $385k.
In order to pull all your money out any price point you need to increase the value by a large percentage, not just a large dollar amount. That is one reason many flippers and BRRR investors target with lower priced markets.