BRRRR Investing Rules of Thumnb
Good Morning Investors,
I am interested in BRRRR investing and am in the process of looking for my first investment (1-4 units) in the western suburbs of Philadelphia. My question pertains to quick screening suspect properties to qualify or disqualify them efficiently for a closer look. Is there a quick screen rule of thumb that investors use to efficiently screen BRRRR opportunities or is it a matter of literally walking hundreds of properties to determine viability as a BRRRR investment? Is the 70% rule relevant as a quick screen tool for BRRRR investing or is that only to be used in fix and flips? I thank all the experienced BRRRR investors in advance for their wisdom on this topic.
Steve
Most Popular Reply
Howdy @Steve Uhlig
Here is the way I go about it:
1. Locate distressed property.
2. Determine if property currently meets the 1% rule (Asking price vs Monthly Rent)
3. Does the property meet my minimum Cash Flow criteria ($100 per unit) using the 50% rule.
4. Get comps to determine Fair Market Value (like new condition or ARV)
5. Develop Rehab estimate
6. Use 70% rule to determine my All-in cost limit (Purchase price, Rehab cost, Closing and Holding costs)
7. Determine my Maximum Allowable Offer
ARV x 70% - Rehab Costs - Closing Costs - Holding Costs = MAO
I also check how the property will Cash Flow after the Rehab and Refinance. Most properties I buy are under Market rent rates so the new mortgage payment usually does not wipe out the Cash Flow. If I cannot meet my minimum criteria I may adjust the Cash-out amount to reach the minimum. If too much of an adjustment is required I may have to pass on the deal.