Would You Spend More Just to Finish a BRRRR Faster?

Question

Let’s say one contractor can finish the rehab for $50K, but he needs three months.

Another wants $57K but says he can have it rent-ready in six weeks.

My first instinct would be to take the cheaper bid. But once you add another month or two of interest, utilities, insurance, lawn care, and no rent coming in, I’m not sure it’s actually cheaper anymore.

For those who’ve done a few BRRRRs, how much is speed realistically worth to you?

Have you ever chosen the more expensive contractor because the shorter timeline made the overall deal better?

James Jones · Answer

You're thinking about it right, and yes, I've paid up for speed more than once.

Run the actual math on your example. The $7k gap buys you ~6 weeks. Figure your carry, interest, taxes, insurance, utilities, is probably $1,500-2,500/month on a BRRRR, so 6 weeks is roughly $2,250-3,750 you're not spending. Add the rent you start collecting a month and a half sooner, call it another $1,500-2,000. So the real cost of going faster isn't $7k, it's more like $2-3k net. On a deal you're refinancing anyway, that's usually worth it.

But two cautions before you just pick the fast guy.

Faster only counts if he actually delivers. A six-week promise that slips to fourteen is worse than an honest twelve. Speed's only worth paying for from a contractor with the crew and track record to hit it. Check that the fast bid is real, not just told to you.

And on a BRRRR specifically, finishing sooner means you refinance sooner, which on a rising-rate stretch can matter as much as the carry. Time out of the deal is the whole model. Every week the money's stuck is a week it's not in the next one.

So my rule: I'll pay a premium for speed as long as the net cost after carry and earlier rent is small, and the fast contractor is someone I trust to actually be fast. Cheapest bid that drags for months quietly wrecks more BRRRRs than the pricier one that finishes.

Andrew Lee · Answer

Hi Ali,

Lender here. In you scenario, if you hire a contractor that finishes in 6 week, you may run into seasonality issues unless you refinance with a lender that has no seasoning. 3 months is still considered a very fast flip and meets seasoning requirements for many lenders to refinance into a DSCR. If you are planning to sell, weigh out if the $7K difference is cheaper than your holding costs.

Andrew Postell · Answer

@Ali Kalaei thanks for posting.  Always great to hear from a fellow Texan.  Now, the above comments are hitting on something and I want to make sure to hit on it a lot harder. How do you know that a contractor is any good?  An electrician?  A title company?  Anything?  Even if they do have 20 years experience...how do you know really?  And while nothing is foolproof the most consistent method of finding good vendors is relying on OTHER real estate investors that have worked with those vendors.  This is why we network with other real estate investors - kind of like what you are doing here!

What I mean here, I NEVER believe what a contractor tells me their timeline is - ever.  Because, I know over doing this for 25+ years, contractors don't know how to estimate their timelines. They don't account for weather, turnover, etc.  It's just pointless to expect them to know how to do it.  I use $750 per day to formulate the time that it takes for my contractors to get the job done.  Meaning, if the work is $50,000, then $50k divided by $750 per day = 67 days.  That is the total.  Now, 20 years ago, I used $500 per day.  It's not higher because my contractors got better...things are just more expensive now.  That's why it's higher than it used to be.  But the most CRITICAL piece to ALL of this is that my contractor is a trusted vendor that has been vetted.  Without that, none of this works.

So, make sure you are following networking with other investors to find out who the right contractors are to trust.  Once you have those, then use the math above to bet a good baseline for the timeline.

hope all of that make sense!

Joseph Cacciapaglia · Answer

Do you believe each of their timelines? I've noticed that many contractors will over promise when it comes to how quickly they can get a project done. They're remembering the one time 2 decades ago when everything went absolutely perfectly. Will each one provide a proposed schedule/timeline, or are they just throwing out a number, just like how many create bids?

If you do believe that each timeline is accurate, and the work is similar quality, then it just becomes a math problem. You've already added up a lot of the carrying costs, but you also want to think about the opportunity cost of the money you expect to pull back out of the deal. $7K is a lot relative to a $50K budget, but I'd also like to compare it to however much you plan to unlock with your refinance.

Also, we've seen interest rates rise quite a bit recently. This is a scary time to wait an extra 6 weeks for a refi. I saw a lot of people get caught in BRRRRs in 2022 when rates were rising. That could happen again at any time.

Jaron Walling · Answer

How much is a relationship worth to you? That’s the big question because who is to say the contractor that quoted $57k is any better than the other one? The answer to this question should come from experience with the contractors. Give one or both of them a smaller "test" project and see who performs the best. Scale from there. That’s what we have done and it’s worked out great so far. After that we recommend and get our contractors other jobs because good karma comes back to you. It keeps the train rolling. Cheers.