BRRRR opportunity - any advice?

[John Giachino]

Currently working on getting some estimates for this, but I've got some rough numbers. I've been listening to every podcast I can get my hands on and everything I can read online, but just wanted some additional opinions or advice from the pros. I'm looking at a house in an up and coming neighborhood of OKC. I spoke with owner yesterday and he said there is some foundation work that needs to be done. I am having someone go out and look at this soon to get actual estimates. Other details: house will need to be completely remodeled - new everything. House is less than 1500 sq ft. and about 100 years old with some cool architecture that goes with the area. Initial price is looking at 60K (although I believe we will be coming down from that, but let's use 60K for the numbers). I am confident that the the ARV is at minimum 200K after running some comps (I am licensed agent with access to MLS, and I am having another agent run some comps as well). Again, I haven't gotten a contractor out there to the house quite yet, but with these numbers, as long as the Rehab comes in under 80K (foundation repair included), then add 10K for cost of loans and any other miscellaneous expenses, we should be coming out to a perfect BRRRR at 150K in total and 200K ARV for the refinance. These numbers are just estimates, but I am confident that these are accurate. What I'm really asking is what should I be looking for here, and what are things I should be keeping in mind. Is there anything I am not accounting for?

Thanks in advance!

[Austin Johnson]

rents? are you planning to rent this out? how much per month/year? what type of cash flow? that's a key part to the strategy. form there, how much are you putting away for reserves? vacancies, etc. 

[John Giachino]

Great question. Got the refi quote and PITI should be around $1100, but let's use $1200 for this. Rents in the area are looking around $1600-2000/month depending on the property. And after the rehab it should rent closer to the higher end of that.

[Austin Johnson]

so $100/ door?  

35% for PM, maint, capex, vacancy, ins and taxes. (obviously find those Individually) 
$2,000 - expenses is $1300. minus PITI of $1200. $100 cashflow

if you rent for $1900 though, it's a NOI of $1,235. with PITI of $1200. $35 cash flow. woo!

[John Giachino]

No Property management fees, I manage myself. Reasonable to expect little to no CapEx in the first 5 years since that will be included with the rehab. Again, not a large amount of maintenance due to full rehab. On top of that, this would be in a high appreciation area. That cuts most of what you were saying. I truly appreciate the input.

[Caleb Brown]

Sounds like a solid deal. Just make sure to get 2-3 bids and if it's 80K under go for it

[John Giachino]

Thank you, Caleb! 

[Derik Keith]

This sounds like a completely doable deal to me.  Track those numbers on a spreadsheet so you can compare estimates to actual costs.  It helps for future projects.  Due to inflation of prices, I found myself a little over budget in the past few rehabs.  Good luck out there.

[Leo R.]

@John Giachino how significant is the foundation damage, and how confident are you in your repair estimate?

Foundation damage can range from some superficial cracks that can be patched over to significant structural problems that could cost tens on tens on tens of thousands to repair (or may not even be worth repairing, and might necessitate a full demolition of the house).

Personally, significant foundation/structural issues are one of the things I look for first, and I generally won't buy a property at any price if it has significant structural issues.  If these foundation problems are anything beyond superficial, I strongly recommend getting multiple quotes from licensed pros who have experience not just in fixing foundation problems, but fixing foundation problems on 100+ year old properties that have the same type of foundation as yours (keep in mind: fixing a 1900 sandstone block foundation is a whole different ballgame than fixing a 1970s reinforced concrete foundation, which is different than cinderblock, which is different than...etc., and you want quotes from people who have experience fixing the same type of foundation as yours). 

Also, you've probably already factored this in, but I'd suggest creating a "worst case scenario" financial model which includes extremely high interest rates at the time when you need to refi.   ...it's all but guaranteed that rates will continue to go up for the foreseeable future.

Good luck out there!

[Drew Sygit]

@John Giachino how much rehab experience do you have?

This one sounds pretty intense, so would recommend a "newbie" pass on it.