BRRRR Full Rehab Cash Flow and 50% Rule?

Question

So I've heard a few investors on the podcast spit their numbers after a BRRRR and all of them said they cashflow. But using the 50% rule of thumb as a conservative start to estimate capex/vacancy/repairs, they did not technicaly cash flow based on .5 x gross rent - PITI.

I assume this is because with a brand new product, maintenance and capex will be really low for a long time am I right? So with this said, anyone who has done a lot of BRRRS before is there alnost an average BRRRR x% rule you have found to be true? More like 20-25% or lower?

Hoping to understand this more as I dive into deals of this kind. 50% rule is tough in my market given the forced equity would really push the LTV past the 50% making sense when you refi.

Appreciate the responses in advance.

Account Closed · Answer

@Eric S.

Also keep in mind the 50% rule is .5 x gross rents minus PI (taxes and insurance are already part of the .5 cost).

Eric S. · Answer

Ahh that is something I never realized (I always thought of debt service in the calculations was PITI and not decoupled). Thanks for that because where I am that tax number is really high and messes up the rough equations big time.

Account Closed · Answer

@Eric S.

No problem, it's an easy mistake to make. I made it myself before lol

Eric S. · Answer

I totally hear you on full rental analysis. I was just starting with quick back-of-the envelope math to screen deals and I was scratching my head hearing what other BRRR investors are quoting for after rehab/refi real numbers. They clearly had expenses  thinner than 50% in most cases so my assumption was, with a quality product (full renovation of all the big capex things: roof, mechanicals, plumbing), and in a decent area with good tenants, you can safely lower the expense projections under 50%. I know that's not a hard and fast rule, but many people use that as " No way would I even look at that deal if it's not cash flowing above 50%".

Jaysen Medhurst · Answer

The 50% rule is just a starting point, @Eric S. You have to do a full rental analysis on every potential deal. CapEx and repairs should be lower after renovation, but how much lower and for how long really depends on the renovation, location, and tenant class. Way too many variables to just slap on 50% and go about your business.

BRRRR Full Rehab Cash Flow and 50% Rule?

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