Buying my first BRRRR - Is this a good deal?

Question

Hello all, I'm new to Bigger Pockets and real estate investing. I'm looking at my first BRRRR and unsure about this particular deal. Dallas area. I feel the cash flow is a little low for this property, but any insight would be greatly appreciated.

220k sales price. 40k reno. 300k ARV.

Refi at 80% LTV

Rents are approximately $2300

220k sales price. 40k reno. 300k ARV.

Refi at 80% LTV

Rents are approximately $2300

Mike Klarman · Answer

Not a good deal at all.  First off, the chances of the 40k are slim.  Probably more.  And it is a 260k project cost with a 300k ARV.  That's 86%!  Terrible deal.  You'll have to put more money in at refi if anything goes wrong.

At a 300k ARV, I'd wanna be in max 200k between rehab and purchase.

Ravi Kaku · Answer

At first glance, I think the biggest question is how much cash you'll actually need to bring to closing.

Many hard money lenders will lend based on a percentage of the ARV (often around 70%), but every lender structures their program differently. Depending on the purchase price, rehab budget, and how the lender advances rehab funds, you may still need a meaningful amount of cash into the deal.

Beyond that, I'd look closely at a few things:

• Does the deal still cash flow after today's interest rates, taxes, insurance, maintenance, and vacancy?
• Are the $40k rehab costs based on contractor bids with a contingency built in?
• If the appraisal comes in below the $300k ARV, are you still comfortable holding the property?

Personally, I'd rather pass on a marginal BRRRR than force the numbers to work. In today's market, buying at the right price is more important than ever because it gives you flexibility if rehab costs or the refinance don't go exactly as planned.

Do you know what the annual property taxes and insurance look like? Those two expenses can make a big difference in whether $2,300/month rent produces acceptable cash flow.

Nicholas L. · Answer

@Arman Delaughter

hello - this will not work as a BRRRR.  the ARV is not high enough.

Jaron Walling · Answer

@Arman Delaughter Buy it for $210k, $35k reno, and sell for $300k.

Swing some hammers and cut some labor costs. That's a solid flip deal.

Ashish Acharya · Answer

Arman, I would not call this a bad deal, but I also would not move forward based on these three numbers alone.

Your purchase and renovation put you at about $260,000 all in before closing costs, financing costs, and carrying expenses. If the property appraises at $300,000 and the lender truly gives you 80% LTV, the refinance would be around $240,000. That means you would still have at least $20,000 left in the deal, plus whatever you spend on interest, utilities, insurance, taxes, and loan fees during the renovation.

That is not necessarily a problem. The bigger question is whether the property still produces enough cash flow after the refinance. At $2,300 in rent, I would want to see the projected mortgage payment, property taxes, insurance, vacancy, repairs, CapEx, and management before deciding. I would also make sure the $300,000 ARV is supported by recently sold renovated properties, not just active listings.

I would stress-test it at a lower appraisal, a higher renovation budget, and a slightly lower rent. If the deal still works when one or two things go wrong, it may be worth pursuing.

On the tax side, keep detailed rehab invoices from the beginning. Some costs may qualify as repairs, while improvements generally need to be capitalized and depreciated once the property is ready and available for rent. I would also have your CPA evaluate whether cost segregation makes sense after the rehab is complete. Since you are already replacing or improving different components, a study may identify shorter-lived assets that can be depreciated faster and improve the early-year after-tax return. Whether it is worth doing depends on the final basis, your tax situation, and whether you can actually use the accelerated losses.

Happy to connect!

Dan H. · Answer

You will not extract all the investment, but that is not a deal breaker to me.

However, you do not state the expected rent.   My belief is that it would project negative cash flow with my underwriting.   So your sweat equity will get eroded every month.

This is the same issue with brrrrs in my market.   Many investors that were doing brrrrs in my market prior to 2022 have transitioned to flips ( primarily) or other RE strategies (I have been trying to concentrate on optimizing existing properties and sophisticated value adds).

Good luck

Diego Alvarado · Answer

It is a simple math if you are putting $260,000 on total cost, after refi you will get $240,000 so it depends on how you are looking at the deal. You are leaving equity in the property.

In DFW, I am seeing this similar cases multiple time, a full BRRRR is difficult to find.

Buying my first BRRRR - Is this a good deal?

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