BRRR Strategy - What should I upgrade??

Question

Hi all,

I've heard of the BRRR strategy and have done some research on it. It sounds like a great plan but, I wanted to get the BP crowd's thoughts... I currently own a 4 unit property. All units are in rentable condition. They are not glamorous by any means but they are well kept and clean. I want to apply the BRRR strategy to this property but am clueless when it comes to upgrading properties and adding value to a home. What are the key things that I should upgrade to increase the property value the most? Each unit is a 2 bed 1 bath unit. Also, my budget is $7500

Joshua D. · Answer

@Darsh Patel

Would you mind sharing the numbers on the 4 unit that you own?   We could help add way more input if we knew the whole picture.

What did you pay for it? How much do you owe? what is the current sale value?

Knowing this could help us see weather you even need to do upgrades. you might have the ability to refi now if you bought it well.   My guess is that spending $1800 per unit will not add a TON of value if you don't have it equity in it already.

Here are some things I would focus on if I only had 8k and a 4 unit.

1. Fresh exterior and interior paint.

2. Light fixtures and outlets

3. fresh paint on doors or replace them

4. New flooring or carpet

If doing all the work myself I could do this for about 8k,

If these things are already done then foucus on new counter tops and kitchens, and new stuff n the bathrooms.

JD Martin · Answer

There's virtually nothing you can do that is going to help you crank up the appraised value. Value is determined by your local market, and is predominantly based on house size (especially bedrooms and bathrooms) and location. If you can add a bathroom or a bedroom, that will increase your value. Outside of that, if anything is in obviously poor condition, that can crank your appraisal down somewhat from what it would have been, but otherwise you are going to appraise at the market for your house based on how big it is and where it's located.

That said, appraisers are humans like everyone else. Even subconsciously, a well-cared for property is going to influence the appraiser to some extent. But if you bought it at $100k, and the market for that size house in that location is $100k, that's what it's going to appraise at.

Christopher Giannino · Answer

The key to the BRRRR strategy is buying below market value and improving that property for "forced appreciation."  With that being said, typically kitchen and bathrooms sell houses so I would assume that could be a focus for you in order to improve your property's value.  In addition, adding another bedroom or bathroom to a unit/s would increase the value, as well as, increase your rent roll.

Mark Trebor · Answer

Sounds like with a $7500 budget you have $1875 per unit.  That isn't much!  The goal of the $7500 is to increase the properties value so that when you get the appraisal done you can then pull that equity out.  The biggest bang for your buck is adding square feet, next would probably be increasing bedroom/bath count.  For your budget I would say both those items are out of the question.  Unless you have an open dining room that can be converted into a bedroom.  But then you get into what kind of tenants do you want living in your house.  All of the items listed by Joshua above are good advice, having a property appear well maintained will help with the appraisal, but worn carpet vs brand new carpet is not dollar for dollar improvement in property value.  I would say keep the cash as your $7500 investment would need to generate $15000 in increased property value just to break even.  $14000 - $4000(closing cost of new loan) - $2500 (banks only going to let you take 75% of the equity) = $7500 (break even).  Hope that helps.

Jeremy Paschedag · Answer

First it's BRRRR (4 Rs).  Otherwise, it should be just BRR.  No sense in refinancing if your not going to repeat.

Anyway, my understanding is that if you didn't buy your property under market value, it'll be challenging to do BRRRR.  Not impossible though.  You could have forced equity due to time you've owned the property.  That is my case.  I've had my rental for about 4 years.  So I have some equity forced it due to time.  I have also been making half payments every 2 weeks (opportunity from the bank).  In addition to that, generally speaking, and without seeing pix, you get the best bang for your buck with kitchen and bath reno's.  Most of of the rest is just lipstick.

BRRR Strategy - What should I upgrade??

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