How conservative are you with rehab numbers before a BRRRR refi?

Question

For BRRRR investors, how conservative do you get with the rehab number before buying?

Example:

Purchase: $145k
ARV: $240k
Estimated rehab: $40k–$55k
Possible worst case: $65k+

If the deal still works at $55k but starts getting tight at $65k, do you still move forward? Do you underwrite to the high end, wait for a contractor walk-through, build in a fixed contingency, or only buy if the deal still works with the ugly number?

Tyler Ruppert · Answer

What I tend to do: underwrite to the high end of the range, plus a 10-15% contingency on top. If the deal doesn't work at $65k + ~$8k contingency, I'd walk or push for a contractor walk before going non-contingent. On my BRRRRs, my pre-buy top number has been low more often than not. So I plan to spend the contingency.

Richard Golding · Answer

Pulling the trigger on an acquisition when your deal math falls apart at the worst case repair ceiling is a guaranteed way to trap your liquidity in a bad refinance loop. If the project only works out perfectly at a fifty five thousand dollar line item but stalls out completely at sixty five thousand you have zero operational margin for error. In the current market that is not a calculated risk it is a structural gamble.

The advice from Andrew Lee to maintain a hard seventy five percent cap highlights the exit constraint you face on a BRRRR deal. When you transition from a hard money acquisition facility into a long term DSCR loan the bank underwriters do not care about your initial estimates or your personal effort. They will cap your leverage precisely at seventy or seventy five percent of the actual appraised value. If you encounter an unexpected ten thousand dollar foundation crack a hidden sewer line collapse or a major municipal inspection delay during construction your out of pocket capital spikes instantly. You end up leaving heavy cash buried in the dirt right when you need that liquid capital to fund your next acquisition velocity.

Your protection play is to always underwrite your offer directly to the maximum risk ceiling. Build a fixed fifteen percent physical contingency line right into your spreadsheet and treat that ugly number as your true acquisition baseline. If the seller refuses to drop the purchase price to accommodate the structural padding you simply walk away from the table. An operator who survives long term is not the guy who forces tight deals to work on paper but the guy who preserves his liquid cash reserves for assets that offer true operational margin.

Andrew Lee · Answer

Lender here. If you’re flipping, I recommend staying at or below 75% ARV. If your exit strategy is refinancing into a DSCR loan, most lenders will cap the refinance at 70–75% LTV, with some stretching to 80% at less favorable terms.

The ideal scenario is to structure the flip so you can refinance into a DSCR loan with little to no cash left in the deal.