BRRR Order of Operation

8 Replies

Hey everyone,

I have identified a duplex I'd like to conduct my first BRRR on and wanted some opinions on best practices for the initial inspection process. I live out of state and will likely be buying sight unseen.

Is it best to get the inspector in first to give a general snapshot of what needs to be done and the status of the home systems?

-Or-

Is it best to start getting contractors in to provide bids?

Additionally,

I'd hate to waste a bunch of contractors time on writing up bids if the seller is not flexible. Is it better to make an offer at the price you expect to come in at to prevent this situation and test the sellers elasticity?

Thanks y'all!

Mike

from what I have read, you get the property under contract and then during your due diligence period you start getting contractors in for bids and what not. If the numbers make sense proceed with the deal, if numbers dont make sense, back out of deal.

Hi @Michael Tighe , in my opinion, the most important part of the BRRRR strategy is the last "R." You want to have your refinance lender lined up and all ready to go. Otherwise you will buyer and rehab the property, only to find out you don't have a viable exit strategy. If you buy using hard money, you may end up in a bad position, being unable to get out with a regular loan.

Originally posted by @Michael Tighe :

Hey everyone,

I have identified a duplex I'd like to conduct my first BRRR on and wanted some opinions on best practices for the initial inspection process. I live out of state and will likely be buying sight unseen.

Is it best to get the inspector in first to give a general snapshot of what needs to be done and the status of the home systems?

-Or-

Is it best to start getting contractors in to provide bids?

Additionally,

I'd hate to waste a bunch of contractors time on writing up bids if the seller is not flexible. Is it better to make an offer at the price you expect to come in at to prevent this situation and test the sellers elasticity?

Thanks y'all!

Mike

Wrap up the property first and then get an inspection done. There's no sense in getting contractors in there until you have an idea of the scope of work.   

@Michael Tighe , some people will tell you to get the property under contract and THEN figure out if you want it. Yes, you can likely back out and get your deposit back based on ANY inspection even a good one, but its disingenuous to operate that way. 

Since you are buying sight unseen, you need to rely on your "people" who will be local to the property. I would work in this order:

1. Agent recommends property as having potential as a BRRRR

a. Agent provides market analysis with ARV based on the type of rehab you intend to do.

b. Agent provides info about potential rent rates and owner costs for utilities, taxes etc.

2. You do some analysis to see based on a guesstimate of the rehab costs whether this deal pencils out. 

3. Get your contractor/project manager to walk the property and give a scope of work and rough estimate of rehab costs. You aren't looking for hard bids at this point, but you do want some idea of the scope and costs. So, that when you negotiate you are doing with with some knowledge. 

4. Make offers and negotiate through your agent.

5. Have your home inspection done and renegotiate if necessary.

a. Keep in mind a home inspector isn't there to guide you on how to rehab a house or what that will cost. They are there to give information about the current condition of the house.

6. Close on the house.

7. Rehab rehab rehab.

8. Work through your agent to find a qualified tenant and sign them to a lease.

9. Work through your lender to do a cash-out refi

10. Repeat as many times as you can!

@Michael Tighe I would suggest making sure that you have a good team in place before making any purchase. The team would consist of a real estate agent, home inspector, contractor, property manager, insurance agent and loan officer. It is important to discuss your scenario with your loan officer first to ensure you have the ideal exit strategy. Not structuring the deal properly, can create unnecessary delays in recouping your investment, or cost you more money out of your pocket.

Thanks everyone for your great responses! The property is a foreclosure listed on the MLS so I'll be dealing with a bank as the seller. My estimated offer is about 50% of their listing price. To calculate the offer I did 75% of ARV (lots of duplex comps in the area) then subtracted estimated rehab costs.

Seems like there's differing opinions on whether to get it under contract then get bids or get bids then make an offer. Either way someone's time could be wasted; be it the contractors or the listing agent. I'll review David Greene's book to see if he had a specific approach to this.