BRRR holding costs, how do they factor?
In BRRR strategy, what happened to the monthly finance charges during the renovation? The math that I usually hear doesn't speak to whatever you are paying your lender during the 3-6 months of renovation.
BRRR is touted as a strategy that you can use with no money of your own. But If all of the loan is tied up in purchase and renovations, how do you pay those monthly fees?
#3 Investor Mindset Contributor
- Handyman
- Pittsburgh, PA
Simple answer, you have to estimate those expenses and borrow more money up front. And if you estimate wrong, you're going to have to dip into your reserves. Don't have reserves? Get ready for some BRRRR blues.
The closing costs, holding costs and refi costs are all highly overlooked expenses. As @Jim K. mentioned, you need to account for this upfront and have additional funds and/or reserves to cover.
If you want help calculating holding costs I put together a calculator I use for flips, DM me and I'll send you the link. I understand you're looking to hold, but calculating the holding costs is the same exercise.
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Real Estate Agent
- Straight Up Chicago Investor (Podcast)
You have to include holding cost (interest on money, utilities, property taxes, etc). You can recoup some of those cost when its rented and you are collecting rent while completing the refi. I include it, but I would agree with you its probably not talked about enough.
Thanks for the speedy reply, guys. I will have some reserves for sure, don't want to be left out in the cold (pun intended) with BRRR. @TomShallcross I'll definitely take you up on that offer, appreciate it!
Quote from @Tom Shallcross:
The closing costs, holding costs and refi costs are all highly overlooked expenses. As @Jim K. mentioned, you need to account for this upfront and have additional funds and/or reserves to cover.
If you want help calculating holding costs I put together a calculator I use for flips, DM me and I'll send you the link. I understand you're looking to hold, but calculating the holding costs is the same exercise.
Hi Tom would you mind sending me that calculator as well? Thanks in advance