What’s your biggest challenge when evaluating a BRRRR deal?

Question

I'm curious what other are finding most challenging with BRRRR deals right now. Is it finding properties at the right price, keeping rehab costs under control, getting the refinance numbers to work, or making sure the rental cash flow holds up?

For those who have complete a few BRRRR projects, what do you pay the most attention to before moving forward with a deal?

I'd be interested to hear what's working for everyone

James Jones · Answer

For me the challenge is deal flow first, numbers second. In Memphis I buy single-family under $100K with ARV $180K to $265K, and it has to hit the 1% rule on real rent, not hoped-for rent. For Section 8 that is $1,395 to $1,950 for 3BR+. Before I buy I size the refi backwards: DSCR at 70 to 80% LTV, about 30-year amortization, and I assume I leave some cash in. If it only works at top ARV and top rent, I pass. Rehab is where good deals die, so I price conversions that add a bedroom and bath, not cosmetic upgrades that do not raise rent.

James Jones · Answer

Darius — mostly wholesalers, and that is by design. Deal flow is my bottleneck at 236 properties, so I need people bringing me deals in the same nine Memphis ZIPs I buy in: 38109, 38111, 38112, 38114, 38116, 38117, 38118, 38122, and 38128. Because I know those streets, I can say yes or no in minutes on a single-family deal under $100K with ARV $180K to $265K and rent that clears the 1% rule. One more thing: I never put earnest money down, so a wholesaler who needs that from me is the wrong fit. Fast answer, no games, repeat deals — that keeps flow coming.

Matthew Morrow · Answer

@Darius Gibson For us it's the refi more than anything. Purchase price and rehab you can control with solid underwriting and a tight scope, but the appraisal and the lender's seasoning rules are where the plan really gets tested. I'd rather underwrite the refi conservatively, with a lower ARV and a higher rate, and if it still works leaving some cash in, it's a deal. Curious what you're seeing on appraisals from the lender side lately?

Darius Gibson · Answer

That's the big picture of everything, the appraisal can change the whole outcome of a deal, especially if you're counting on that equity to refinance. The appraisal is part of our process, but it is important to underwrite conservatively and not build the project around the highest possible value. Great that you leave a cushion! Are you finding that appraisals are generally supporting your projects ARV, or are you seeing a bigger gap? I'd be happy to be a resource

Darius Gibson · Answer

Well said, the refinance is where a lot of BRRRR deals can get tight, especially when the appraisal or rent comes in lower than expected. I agree that you have to run those numbers conservatively from the start. From your experience working with investors, are you seeing more people struggle to pull their capital back out, or are they adjusting their strategy and leaving more equity in the deal?

Divin Kanyama · Answer

@Darius Gibson One of the biggest challenges with BRRRR deals right now is getting the refinance numbers to work. Higher borrowing costs, conservative appraisals, and tighter lender requirements leave less room for error. A deal can look strong on the purchase and rehab side, but if the stabilized value or rent comes in below expectations, more capital may remain tied up than planned.

Before moving forward, I would pay close attention to the after-repair value, rehab scope, realistic market rent, refinance terms, and total cash left in the deal. It also helps to stress-test the numbers for cost overruns, a lower appraisal, slower lease-up, and higher taxes, insurance, or maintenance. If the deal only works under ideal assumptions, the margin is probably too thin.

What seems to be working best is buying with multiple exit options and maintaining a healthy contingency from the start. A BRRRR does not necessarily need to return every dollar of invested capital to be successful, but the remaining equity, cash flow, and risk should still justify the effort.

Darius Gibson · Answer

That's a strong system. You know your target zip codes and having a clear buy criteria makes it easier to move quickly without having to force any deal. I work on the lending side with Civic Financial Services, so I'd be interested in connecting and being a resource as you continue growing your portfolio. With that amount of deal flow, are you mainly buying cash and refinancing, or using any funding on the acquisition side as well?

Darius Gibson · Answer

That makes sense, James. Working backward from the refi and being conservative on rent and ARV seems like the right way to protect the deal. Deal flow is interesting, too. Are you mainly finding opportunities through wholesalers and direct-to-seller, or has another channel been working best for you in Memphis?

What’s your biggest challenge when evaluating a BRRRR deal?

What’s your biggest challenge when evaluating a BRRRR deal?

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