Steps to a Successful BRRRR

4 Replies

Hey BP, I wanted to reach out and pick the BP brain on the BRRRR strategy. I understand the basics (or at least I think I do). Buy an undervalued propert, rehab it, force some appreciation and then refinance for 75 to 80 % LTV after more or less a 6 month seasoning period. Here’s my question, for someone who doesn’t have a good eye for rehab costs or for someone who is investing out of state, how can I get a good idea of what I can expect in rehab costs? Do most people have a few contractors provide estimates before ever closing on the property or before even making an official offer? What I’m really wondering is how you can be sure the price you offer will be profitable until you can understand the scope of work needed and be able to put that into the overall calculation? I would appreciate tips on this and understanding the step by step process to a successful BRRRR! Thanks BP!

Estimating costs is tough at the beginning, admittedly. Find a friend who has some experience or is a contractor to go through a few houses with you, will help a ton. Just like analyzing deals, analyze rehab costs a few hundred times and you'll get some precision. 

Also, make sure you're buying houses with lots of spread to give you room for error. If I'm off 5-10K in rehab costs my deals are still profitable (on a $60K house that's a lot). This will alleviate a bit of the pain point and pressure on the first few. 

My process is to find a house and make a rough guess (high) if it's accepted then my contractor goes through and confirms. I can bail out of any that I grossly mis-estimate although that is rare these days, but it's a good way for you to get through a few. 

Great that helps a lot. Thanks for your input!

Howdy @Kaydn Jensen

Not sure I would try an out of state BRRRR deal as my first investment. At least not until I thoroughly understand the whole process. First you will need boots on the ground in the form of a Realtor and Property Management. Try to find those experienced in properties that require rehabbing. They should also know some local contractors to use. They can act as your oversight of the project.

Strongly recommend you purchase J Scott’s “The Book on Estimating Rehab Costs “ available here on BP.  It will provide you with a good foundation to start.  Then you can do as @Alexander Felice recommended and do some local estimates.

One of the most important parts of the whole strategy is to develop a solid ARV. Everything else is dependent on that.

Be sure to get your Refinance loan arranged before you commit to a deal. You need to have your exit strategy in place. I always target an all-in cost of 70% of your ARV. Even if you can get 75% - 80% LTV it is good to have that buffer just in case you are off.

The last thing is to be sure you include Holding costs in your calculations.  They can add alot to your all-in amount.  Besides underestimating Rehab costs, Holding costs are a deal killer.

That’s excellent advice, thank you! I just finished reading David Greene’s book on out of state real estate investing that was all about building a team to be your eyes and ears so that’s definitely the plan. I’ve been told to read Jay Scott’s book about 4 times now so I think that’s gotta he my next step!

Thanks again!

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