How to identify a good property to use BRRRR Method

Question

I’m looking to use the BRRRR method for my first real estate investment deal, but I’m feeling overwhelmed on choosing the right right property to do this on. What should I be looking for? How can I mitigate risk as much as possible and “know” I’m getting the right property to perform this on?

Anna Buffkin · Answer

I am by no means the pro others are, but here are my thoughts:

First of all, what is your property criteria?  For example, my husband and I purchase 3 bed preferably 2 bath homes and 2 bed 1 and 2 bath condos or multifamily units in the 29210 and 29205 zip codes of Columbia, SC as well as 3/2 homes in Irmo, SC (Columbia suburb).  Homes must meet the 1% rent/price rule and condos/MF must meet 2% rule.

Next, what type of tenant are you looking for?  I feel like the risk/ reward is best in the lower middle, stereotypical "blue collar" tenant in my market.  To me, poor tenants in "war zones" are too risky and A class properties have too little reward due to the low risk.  Based on my desired tenant, I want to be in the second quartile of median rents.

Based on my criteria above,  I start looking for a new property and I want to BRRRR.  As condos in my area are mostly a cash play not good BRRRs, I narrow my search to houses.  Median rents for a 3 bedroom house in my area is $1200.  Which means I'm looking for a house that will rent for $900-1200 (2nd quartile rents targeted at lower middle tenant affordability).  If I refuse to buy a house that doesn't met the 1% rule even after refi (your percent may be different, but this is what works for me) , the most I can refi is $120,000.   This knowledge has me looking for houses under a $100k including all repairs in order to BRRR out at least $20k.

Based on the above, I have now limited my search to 3 zip codes, a certain type of property and max price.  Many, if not most, will be weeded out just on this criteria alone.

Beyond that, the house tends to find you as much as you find the house.

BJ Everson · Answer

Personally, I would focus on first-time home buyer markets/price range (under $150k where I am). That way your first project isnt high dollar amounts and less risk to you.

Get a good feeling of the area for what market rate/ARV will be so you know what your future value should be. (be more conservative with this number than bullish)

Then I would look for a property that is in a distressed condition, but one that you are comfortable with (focus more on out dated vs needing full gut rehab). Focus your market searches on keywords like "as-is" or "TLC" etc to get your listing down to what you are looking for.

Know what your local lenders are willing to refi for after your repairs so you know what LTV to use. Also, look into seasoning timing lenders are requiring for your refi (usually 6 months).

Do math. Purchase price + rehab < 75% LTV of ARV. If this statement is true buy the sucker. If not, keep looking.

Matthew Bamber · Answer

@Anna Buffkin I really like how you broke down your criteria so clearly. My wife and I are trying to find our first BRRR in NC and that will really help our line of thinking. We have a general criteria but having specifics like you mentioned in terms of rent changes and refi values makes me think we might want to narrow it further.

Jack Inman · Answer

You've got a lot of good advice on this thread with regards to finding a property for the BRRR technique. Probably the most crucial part of the BRRR is pulling your money out at the end. It's important to find a lender that will be favorable during the refinance part of the deal. Some appraisers will work with you more than others will; so my advice would be to ask a couple property management companies or local investors what lenders they recommend.

Michael Lee · Answer

Hello and welcome to this site Chris!  Get a good and an add-value deal that is a Fix and Flip.  If you would rather have rental house with 3 or 4 units, do a "House Hacker" loan that is insured by the FHA and get a 3.5% down payment loan.  It's physical location would matter more on a rental.  Oh yeah, the loan that is was taking about a possible Fix and Flip, that requires residency for about 12 months.  The more units the better. This is what I suggest.  Good luck to you!

How to identify a good property to use BRRRR Method

Most Popular Reply