Small condo under contract for a BRRR. What should I look for in the inspection?

Question

Hi everyone! I'm a pretty new investor (doing 2nd deal), and I'd love some wisdom on this.

I have a 2BR/2.5 bath condo under contract in Tulsa for $80k and I believe the ARV is at least $120k. It's a lipstick flip....floors, interior paint, countertops, etc.

The inspection is Tuesday. What things should I be looking for to see if I have enough cushion in the deal? Thanks in advance!

Dan H. · Answer

Check CC&Rs for virtually everything. The HOA can mandate approvals for many changes. They can dictate flooring, paint, layout. The HOA can take months to approve/deny anything that requires HOA approval

Check the financials of the HOA One special assessment can severely impact this deal.

The hold time must include the HOA fee.

You do not state the rehab costs. The numbers right off the top make this challenging for the ideal brrrr of extracting all investment. $120k at 75% LTV is $90k. The $10k delta on purchase price and refi extraction likely will not cover either the holding, the closing costs, or the rehab much less covering all of those.

Note I do not believe you need an ideal brrrr for the brrrr to be a decent investment. However, you cannot be tight on the value add and then have negative monthly cash flow. This implies it is important to do accurate and conservative underwriting of the on-going performance.

Good luck

Denise Supplee · Answer

Congrats @Greg Kaiser. The biggest cushion killers are things you can’t easily control, so pay close attention to the HOA’s financial health, rules on rentals or resales, and any pending special assessments. On the inspection side, focus less on cosmetic items and more on big-ticket risks like plumbing, electrical, HVAC, windows, and any signs of water intrusion. I’d also recheck your ARV using very recent condo comps in the same complex, since condo values can be much tighter than single-family.

Greg Kaiser · Answer

Thank you!

Greg Kaiser · Answer

Thank you!

Greg Kaiser · Answer

Thank you!

Pierre Guirguis · Answer

For a condo BRRR, the inspection is less about the cosmetic scope and more about hidden risk and things you don’t control.

I’d focus on:

• HOA riskReview reserves, recent or pending special assessments, litigation, rental restrictions, and deferred maintenance. This is often the biggest wildcard in condo deals.
• Major systemsEven on a lipstick flip, check plumbing supply lines, electrical panel, HVAC age, and water heater. One failed system can kill your cushion.
• Water intrusionPay close attention to windows, exterior walls, balconies, and shared plumbing walls. Water issues get expensive fast in condos.
• Rental and refi viabilityConfirm rentals are allowed, investor caps aren’t an issue, and that post-reno rents still work after HOA dues for your refi.

If rehab stays cosmetic, HOA risk is clean, and rents support DSCR, the deal usually works. If one of those breaks, that’s where BRRRs stall.

Patrick Drury · Answer

@Greg KaiserSince it's a condo, make sure you can rent it out. Not every condo can be used as a rental. You would want to check the bylaws and any other condo docs they have available

Greg Kaiser · Answer

Thank you!

Small condo under contract for a BRRR. What should I look for in the inspection?

Small condo under contract for a BRRR. What should I look for in the inspection?

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