BRRRR Deal Calculations
I have heard a lot of people advise to make sure the math is right on a BRRRR deal before you buy, specifically as it refers to calculating repair costs and the correct ARV. For someone starting out interested in this strategy for the equity it can build, how can I guarantee I am calculating my numbers correctly so I don't purchase a bad deal?
Most Popular Reply
There is no way to guarantee the numbers, but you can reduce the chance of a bad surprise by triangulating each major assumption. For ARV, use several recent sold comps that truly match the finished condition, size, bed and bath count, and neighborhood boundary. For rehab, create a line-item scope and get at least two local bids, then add a contingency based on the age and condition of the house. I would also include carrying costs, loan fees, closing costs, and a conservative refinance assumption. Finally, run a downside case with a lower ARV, higher rehab cost, longer timeline, and lower rent. If the deal only works in the best-case column, it probably does not work.