Brrrr how bad of shape should i buy my property

[Tarek Emam]

Hello All,

I am looking for my first Brrrr property and my question is, when looking for properties to implement the BRRRR method, how bad of shape should a house be? Should the property be gutted to the studs? Should it be a light rehab. ( carpert, paint,) should it be a medium rehab ( bathroom updates, kitchen updates, flooring) etc. How beat up should the house buy when purchasing when implementing the BRRRR method.

[Marcus Auerbach]

@Tarek Emam - lots of good answers here I agree with. From 10+ years of BRRRR in Milwaukee I can tell you the following in addition:

Rehab to cost ratio; Rehab cost is pretty much fixed as a $ value independet from propperty value. You can think of it as a cost per squre foot. We spend on average about 50k on a rehab. Here is the takeaway: the math works better if the rehab is a smaller percentage of the ARV. Meaning it is easier to make a 50k rehab work on a 150k property than on a 30k property.

Impact on ARV: some items will have more impact on ARV than others. An appraiser will not give you much credit for a new driveway, roof and new windows. You will get much higher returns on kitchens and bathrooms, flooring and paint, landscaping and cleanup. So, in theory pick a house that has the expensive things already done and leaves you ideally with costmetic updates.

We usually do adress all capex items for the next 20 years, which means I often spend 100% of ARV or even more. I do that because I now have an asset that does not require capex reserves for the forseable future. A lot of people choose to BRRRR and then do a new roof in 3 years and a new driveway in 5 years, so the property keeps consuming it's cash flow, but they can say that they have made 25% in equity in the beginning. The part they don't leave out is they also have capex liabilities on the books for years to come.