First time BRRRR strategy

7 Replies

Hello BP members!

I an investor based in Sacramento, CA and have recently closed on my first deal where we built a new home from the ground up! Being my very first deal, I was surprised to find that new construction was considerably cheaper than the average purchase price per home in my area. I am now looking to BRRRR my next deal and house hack it to kick off my longterm investment career.

I was wondering if it might be a better idea to build my next property and refinance out of it instead of acquiring a distressed property. If the numbers work I can refinance out of a hard money loan and have a new construction property that would nearly eliminate any typical costs that are associated with older properties.

Thank you guys in advance for your advice and suggestions!

 

Hi Martin,

Congratulations on a successful first deal.  Can you provide some numbers?  I'm interested in your comment that building was considerably cheaper than buying a fixer.


Thanks.
Dave

@Dave Peterson

Thanks for your response dave! I have a lot that I’ve been looking at that has an asking price of a little above 50K. A rough construction cost would be 300K and is in an area that some new construction just got approved for (~50+ homes). A costco just got approved to be built next to it as well so there are some really good upsides to it. The properties value should come up to around 450k+ using comps in the area and this is not including the upside value given with the new construction that is going around in the area!

Hey guys, This is a timely discussion. I just came across the same concept. In talked with a new construction contractor who quoted me a ballpark Figure for $200/sqft new build. While the average resale home in the Sacramento area is closer to $250/sqft and above in some areas. Granted that’s not a fixer for cash it is a strategy to look into.

@Martin Rubalcava , that is a great option to be available.  Clearly, that pricing difference is why builders can make money, and it happens here all the time.  

Depending on your timeline, I would also look at construction lending from a traditional bank, typically local bank or credit union. If you are able to sit on the 45 days to close part of the deal, it will likely be MUCH cheaper than a hard money lender or even a private lender.

The difference is about 100k. There are other costs to consider. You have to buy the lot. Clear it. Get water and electricity to the site and then hook it up. That 100k is going to get squeezed somewhat.

After you do the same house several times, I am sure the contractor will be able to do it for less. OR you can be the general contractor and sub the guys out yourself. This way you basically get the discount of the contractor's pay. He has got to be making 30k to 40k per house, maybe even more.

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