Do BRRRR numbers work in the GTA?

Question

Hi everyone! I’m fairly new to real estate investing and am currently absorbing as much knowledge as  I can for when I am ready to purchase my first investment property.

Amongst other books I’ve been reading the BRRRR strategy book and I input some numbers for a (very rough) example deal potentially found somewhere in the GTA as follows:

House ARV $600,000

To apply the BRRRR strategy at 75% of ARV value, the property would need to be all in for no more than $450000.

A further breakdown could look something like this

68% - $408000 actual purchase price

5% - $30000 renos

2% - $12000 other costs

So my question is: is it realistic/possible to purchase a home for $408000 and then using only $30000, bring it up to $600000 in Ontario?

As far as I know, especially now post pandemic, renos are quite expensive, with a kitchen alone eating up the entire reno cost. The way I see it, if you buy it for less, you likely need a SUBSTANTIAL amount of reno thus throwing off reno cost, or if you buy it for more, there’s not much to rehab and profit from. Is it just a matter of strategizing (finding cheaper materials, wholesaling well etc.), or are my example numbers wayyyy off?

Thanks so much in advance for any insight!

Steven Goldman · Answer

Unless you find the property at a distress sale it will surely require much more than a $30,000.00 rehab.  Good lcuk,

Jeremy Horton · Answer

So you have the right idea but the numbers are not realistic

It would look something more like - 600K (ARV) you'd buy at 350-400K, you'd reno for 80-100K

In my area its something like - buy for 75-90k, reno for 30k, ARV around 150K, rents for 1100-1200. These are LTRs not flips. I typically end up with $ left in the deal but it'd be less than if I put 20% down buying at market price.

The BRRRs typically need a large rehab - this is just the nature of the beast. 30k rehab on a 600k house really isn't much. We're talking basic cosmetics (I'm assuming this is a nice house and not a small downtown condo)

It's still hard for me to do in this market - the last house I paid 130k for, rehab will be 30k and it'll appraise for 175k or so, so I have a little equity built in. Reason I did it this way - house popped up a few streets from where I currently live, 500 sq ft bigger and I can turn my current house into a rental (refinanced it at 115k at 3.25% back in 2021). Now I did make it a lot nicer than it needed it be - for a rental I could've put 10-15k in it and called it a day, and it would've been a nice rental. But I did all new appliances, granite countertops everywhere, stained cement flooring, new doors, electrical box, recessed lighting, big backyard shed, gutters, paver patio etc...you get the idea