BRRRR: For renovation, how much is too much?

Question

Hello BP!

I am investing in the DFW area, and still searching for the right property to BRRRR.

One older SFH could also be a duplex, but the square footage would need to be increased to make a reasonable deal.  This would probably include foundation and/or architect work for a top-to-bottom rehab, ballpark $110-$150k.

To make a good deal, I’m assuming you look for good “bones,” where the remodel can be limited to kitchen, drywall, paint, floors, etc.  Has anyone had luck with more significant jobs?

Tom Shallcross · Answer

@Don Petrash, I agree with @Kenneth Bullock.  You usually cannot create enough additional annual income to justify the cost of the additional space.  But, there are going to be situations where the numbers work.

Regardless, the larger rehabs increase risk and holding time so I'd want a bigger equity spread to make it worth the risk. A 125k purchase and 50k rehab is not the same project as a 50k purchase and 125k rehab even though the total all-in numbers both equal 175k on a spreadsheet.  A lot more can go wrong and you need to account for these contingencies (ask me how I know :)

Kenneth Garrett · Answer

@Don Petrash

In general the cost to construct additions using the BRRRR method is cost prohibitive.  Your all in cost just can’t generate enough revenue to make it worth it.  I have done rehabs of all rooms.  Kitchens, baths, basement finishes etc in excess of 50K.  It’s always about the numbers.  If the numbers work then it’s a go.