My First BRRRR Deal - HELP?!?

Question

I'm new to the real estate investing world and to BP.  I purchased two buy and hold single family last year.  They are going well as I roughly got a cash on cash return of 15%.  I have a property manager and slightly increased both rents this year.  No complaints yet.  I'm recently energized after stumbling upon BP's podcast and in a place financially to scoop up a few properties quickly.

Having said that, I'm looking at my first BRRRR project.  I plan to purchase it all cash with my HELOC and fund the rehab with the same HELOC funds.  Rinse and repeat, right?!  I'll simultaneously have my property manager lining up a tenant.  I think I found something I can get in under the 70% ARV less reno costs after speaking with my contractor.  But being my first rehab project, what things do I need to look for in terms of exhaustive rehab costs?  I don't want to miss something big and blow the deal.  Do I get an inspection to start?  Everything thus far has been visual from online and drive by-s.

I can stick with a regular buy and hold (which I still plan to do as I grow my portfolio) but love the idea of infinity returns being able to pull my initial 'down payment' out.

Thoughts?

Thanks - Mike

Mike Rutherford · Answer

Thanks Nicholas.  My inspector (who is seasoned in flipping) has agreed to walk me through it.  Of course, for a small price.  He said he’s been within budget on his past 4-5 deals.  I don’t mind paying an extra $50 or so for an experienced opinion.  He’s also willing to share his list of subs which should save on GC costs.

Nicholas Lohr · Answer

I've done 3 BRRRR deals. I'd say definitely get the inspection and also get another contractor in there to look at it. A 2nd set of eyes is a good idea.

Also have a contingency amount for the rehab costs.  For example, the "in my head budget" target for my current BRRRR deal is $150,000 but the real "secret" number is $180,000.  I'll still do fine return wise if it goes to $180,000 but when I listed out the costs it came to around $150,000 and thats what I shot for.   It's a good thing too because, as always, we ran into some stuff in one of the units' plumbing that nobody could see or realize until we went to redo the bathroom.

Come up with your rehab number, then tack on some extra money for contingency, and then run the numbers again with the added costs to make sure you'd still make out ok.