First Deal Frustration

[Jeremy Keeler]

Hello all,

So after several years of doing studying and research and getting my ducks in a row, we are now finally making offers on properties that we want to BRRRR. We are using our HELOC and hopefully an HML to leverage our funds. The issue we keep running into is rehab cost. On many of these properties, we get a handful of pictures or sometimes one! So we are going in blind as a bat and only relying on ARV comps to determine value. We are getting outbid by folks that are either stupid or are way more experienced than we are and know something we don't.
We just put in a bid last night on a HUD foreclosure that's listed at 80K with ARV at 179K. It's in a rapidly growing area where vacancy is around 1.5 to 4% depending on what you read. The shocker was the rough estimate we got from a contractor for the repair cost, 55K!

When you factor in the cost to buy, the cost to repair, the cost of HML interest, HML points fees, inspectors, draw fees, surveys, builders risk insurance, homeowner non-occupied insurance, brokers fees, and closing cost, this stellar deal becomes a loser costing us 25K out of pocket after refinancing!

Last night I kept asking myself and my wife what I was missing? How is it a house with an ARV of nearly +100K over list is going to cost us money? What are we missing?

Now I know it's possible that we could shave maybe 10-15K off of the rehab costs once the contractors get an up-close look at it, but that still leaves us in negative territory.

I'm at a loss and a bit discouraged. We find out in about an hour if we are the highest bidders.