First BRRRR Deal—ARV
I am working on my first BRRRR deal and trying to figure the numbers. How much of my rehab cost will reflect in ARV? Current appraisal is $145,000. Asking price is $100,000. Assuming that's what we pay, will $50,000 in work likely equal $50,000 in value increase? It is an old house with pink tubs etc.
Almost impossible to answer without getting comps in the area. It might not necessarily give you a 50k increase. Something I did was go on zillow and look to see what the city values my neighbors properties at. While not 100% accurate it can sorta give you a ballpark.
There is variation in markets and I don't know yours, but I would consult with a realtor. Give them beds/ba, sq footage, part of town, or better yet a couple blocks on a street and ask them if you had a rehabbed house what could you expect? Work backwards from there. We have gotten 130-150% return on our rehabs (full disclosure only two). But BRRRR strategy is only sustainable if you create 25%-30% equity in addition to your costs of the acquisition and rehab. So the smaller the rehab % of your budget the greater your return on the rehab investment has to be.
In your specific case, can you rent it out without rehab? Probably not with pink tubs. You could refi that one right now and get your whole investment back if it would. (We've done that once too, it's amazing).
@Todd Rasmussen I am going back and forth on that question. I think I can rent it with some minor cosmetic work. I think this is what I’m gonna do. I can buy it and likely get a check at closing so this sounds great to me.
@Todd Rasmussen I also have a call with my realtor in the morning to discuss.
Property manager might be able to help make the rent with light or rent with heavy reno work if you get doubts. REI problems, lol!
@Todd Rasmussen bad news good news—
Bad news:flood insurance on this place is $3500/yr.
Good news: It looks like the seller may come down low enough to still have it make sense. Should be able to even close without any out of pocket for purchase or renovation!
@Brett Arceneaux
Just keep the old tubs in the yard with a plug in them just in case.
Flood zone is too bad. Keep in mind the expense will be subject to inflation so your seller concession needs to account for the fact that you’ll have slow but still exponential growth on 3500 extra expense for as long as you own it.