Help me analyze my first home for BRRRR. I think I did it wrong;)

[Sarah Cowns]

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I already own this home in another state that my parents live in. It needs some work and I was trying to figure out if I could use it as my first BRRRR. I will just have to figure out what to do with them during the process of rehabbing. Any advice is greatly appreciated. 

[Evan Polaski]

Hi Sarah,

$21k in rehab is not a lot of rehab, and $55k purchase price typically makes me think a lot of work needed.  

But let's say you can get it rent ready for $21k, the Capex budget is low. You are reserving less than $1,200/yr. For reference I spent $3k chasing a roof leak. Granted this isn't an annual occurrence, but depending on the condition of the property, I would say you are light on Capex.

From there, I would look at the tenant base that will be renting this property.  You can find good tenants in all markets, but generally lower end areas it is harder to find qualified tenants, and they will likely turn more frequently.  Each turn means more wear and tear repairs (not reimbursable through security deposit) so factoring in higher repairs/turnover costs could be worthwhile.  I don't see a vacancy reserve, but this could be "built into 50% rule".  Who is managing and leasing?  If third party, typical management fee is 10% and leasing commissions range, but commonly 1 mo rent for new leases and 1/2 mo rent for renewals.