Looking for advice on BRRRR for my second deal
Hi everyone! Have been reading Bigger Pockets and listening to the podcasts for over a year now and am happy to say I was able to get my first deal in January because of all the great information. Ended up with a duplex via FHA that I'm house hacking.
Anyway, I am now trying to get my second deal and want to go with the BRRRR process as I've secured some private money. My biggest concern is getting the loan once the property is rehabbed along with properly forecasting how much of a loan I'll be able to get. Credit isnt an issue but I'm unsure if the FHA loan will complicate things. Plus, I'm just not familiar with the process of financing a property paid in cash. To give some more information I am looking for a single family house (columbus, OH) that I can add functional value and hopefully square footage to in order to increase ARV. Looking at the 50-80k purchase price range.
I'm looking for any and all advice regarding doing a BRRRR deal. Thanks in advance!
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I recommend buying and reading David Greene's BRRRR book--we did and we find it to be invaluable as we attempt multiple BRRRRs.
As for the loan, we've found the two most important determinants to be a) Loan To Value (LTV) of the After Repair Value (ARV) of the property. We've found most lenders will provide 75% LTV of the ARV. Thus, if you but for $50K, put in $25K in repairs and the ARV of the home is deemed to be $100K (which is the same way as saying the house appraises for $100K after your repairs), you will qualify for a $75k mortgage. I just shared that really quickly, so again, I refer to David Greene's book.
So, how do you estimate the home's ARV? We do it by scouring Realtor, Zillow, Trulia & Redfin for recently sold homes in the target neighborhood and looking at their prices, square footages and room counts to create a list of 4-5 homes that match the home we intend to create with our purchase and renovations. We throw these into a spreadsheet and take an average to create our own "desktop" estimate. This is not foolproof, but it gives us an ARV ballpark.
Hope this helps.