Hi - just starting to get into the BRRRR deal concept - here is an example of a deal that I am getting.
I am considering doing a flip vs buy and hold.
Again the below is just a best estimate - Do you guys think I'm factoring in 99% of the expected costs?
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Hi Jason - any feedback?
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Hi Jason - I thought 1031 exchange on a fix and flip is not allowed by the IRS?
On your other two points -
The ARV is from recent comps in the area in the last 6 months
The rent is also very good/decent in the area (from Section 8 tenants) - approx $250/month of cash flow when you remove the mortgage etc.
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Hi Jason - any feedback?
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Hi Jason - any feedback?
@Sharma Parth, You are correct. You cannot do a 1031 exchange on a fix n flip. Your intent must be to hold for productive investment use. And although it's not a hard and fast rule, the general guideline is to hold the property for a year.
But the fix n flip also doesn't work with a BRRRR. Those are two different concepts. A BRRRR works beautifully with 1031 exchanges.
In your situation don't sell. do the refinance. Pull out the $140K and purchase your next property while renting the first property. The cash flow from the rental will help your lendability. And you won't immediately give up 40% of your profit in taxes.
Simply keep repeating this process with one addition - periodically (when you have a good reason) you will sell one of your rentals and using a 1031 exchange, purchase 1 or two new properties to again BRRRR. This way your portfolio stays fresh, non-taxed, and productive.
I have clients who have done upwards of 30 1031 exchanges in a given year - all on properties they had owned for at least a year. And all purchased through a BRRRR process.
Hi Sharma, these numbers look good. I'd recommend factoring in a bit more time for how long the rehab will take to be on the safe side, but I do like the MISC Expenses buffer that you put in there.
Hi Sharma, these numbers look good. I'd recommend factoring in a bit more time for how long the rehab will take to be on the safe side, but I do like the MISC Expenses buffer that you put in there.
Thank you Conor for your feedback. I really appreciate this.
@Sharma Parth, You are correct. You cannot do a 1031 exchange on a fix n flip. Your intent must be to hold for productive investment use. And although it's not a hard and fast rule, the general guideline is to hold the property for a year.
But the fix n flip also doesn't work with a BRRRR. Those are two different concepts. A BRRRR works beautifully with 1031 exchanges.
In your situation don't sell. do the refinance. Pull out the $140K and purchase your next property while renting the first property. The cash flow from the rental will help your lendability. And you won't immediately give up 40% of your profit in taxes.
Simply keep repeating this process with one addition - periodically (when you have a good reason) you will sell one of your rentals and using a 1031 exchange, purchase 1 or two new properties to again BRRRR. This way your portfolio stays fresh, non-taxed, and productive.
I have clients who have done upwards of 30 1031 exchanges in a given year - all on properties they had owned for at least a year. And all purchased through a BRRRR process.
Thank you Dave for the amazing advice. I agree with your approach totally and most likely I may end up following that. I am just a little nervous with a buy and hold with concerns if I will get a tenant but then that's on me to do my homework up front. I have identified the following people I need to have in place before I pull the trigger on a BRRRR opportunity
1. A good contractor
2. Good lender
3. Title Company
4. A good local real estate agent.
Of course having a back-up to 1-4 above will help too.
Thanks again
Sharma,
Just a few things on the surface the deal looks great in terms of gained equity for the price plus injected costs to renovate/repair. There is No rents to see if it will support itself after the refinance, so its tough to speculate on ROI/cash flow on a long term investment. Just from a fix & flip it looks great but have you considered a 1031 exchange to avoid the capital gains?
Who is doing the ARV evaluation because I have seen a lot of examples over the last 3 years when a new investor looks to buy a property and ends up having the wrong ARV or sale value. If you refinance keep in mind you can get up to 80% LTV even as an investment rental.
I would look into a 1031 exchange to avoid that huge Tax hit...
Hi Jason - any feedback?
Thank you so much Jason for your feedback.
You seem to be someone who has dealt with multiple investor over the years and this advice is super helpful. I really appreciate this feedback.
I am hoping to be in a buy and hold strategy vs buy and flip (as long as the numbers make sense). I posted this earlier but I also want to ID a good team in the BRRRR process -
1. A good contractor
2. Good lender
3. Title Company
4. A good local real estate agent.
Of course having a back-up to 1-4 above will help too.
Thanks again
Hi Sharma, these numbers look good. I'd recommend factoring in a bit more time for how long the rehab will take to be on the safe side, but I do like the MISC Expenses buffer that you put in there.
Connor - can you tell me how you would rank the following markets for a potential BRRRR deal (buy and hold) -
1. Philadelphia, Pennsylvania.
2. Flint, Michigan. or Detroit, Michigan.
3. Norfolk/Hampton/Portsmouth, Virginia.
Thank you
@Sharma Parth, You are correct. You cannot do a 1031 exchange on a fix n flip. Your intent must be to hold for productive investment use. And although it's not a hard and fast rule, the general guideline is to hold the property for a year.
But the fix n flip also doesn't work with a BRRRR. Those are two different concepts. A BRRRR works beautifully with 1031 exchanges.
In your situation don't sell. do the refinance. Pull out the $140K and purchase your next property while renting the first property. The cash flow from the rental will help your lendability. And you won't immediately give up 40% of your profit in taxes.
Simply keep repeating this process with one addition - periodically (when you have a good reason) you will sell one of your rentals and using a 1031 exchange, purchase 1 or two new properties to again BRRRR. This way your portfolio stays fresh, non-taxed, and productive.
I have clients who have done upwards of 30 1031 exchanges in a given year - all on properties they had owned for at least a year. And all purchased through a BRRRR process.
Hi Dave - can you tell me how you would rank the following markets for a potential BRRRR deal (buy and hold) -
1. Philadelphia, Pennsylvania.
2. Flint, Michigan. or Detroit, Michigan.
3. Norfolk/Hampton/Portsmouth, Virginia.
Thank you
If ARV is 200k and you can buy it for 75 and fix it for 40, I would say you are in the green. Given the low price point I would be hesitant on keeping the property depending on the quality of the area...
Keep the best, flip the rest.
If its a solid location, I'd consider keeping.
Also, make sure you talk to a local Realtor who can analyze the market for you and tell you what you can expect when you try to sell.
In our area, a property like this could either go in 2 days or sit on the market forever depending on location, comps, and local market.
Looks like a solid flip, but due diligence about other factors besides numbers is very important
@Sharma Parth we wouldn't recommend Flint, as there is no positive business news there. Properties are super cheap in Flint for a reason!
Detroit has LOTS of exciting business news and is growing for the first time in decades:)
Curious as to where you got your example deal from and what city/state it's located in?
