BRRRR on $30k total?

[Samat Davletshin]

Happy Saturday, people of Bigger Pockets!

I, ideally, want to buy my first property in the low price range to minimize the cost of likely mistakes. Feel free to let me know why this is a bad idea!:)

So I am looking to spend around $30k and do a BRRRR deal. I know that is not easy, but why not try and see if it is possible?

Disclaimer: I am still in the research phase on which state/market to choose. I understand that it will be crucial to find a great team in that area, but given that I will be doing the team search for any area, I could focus on the markets that are favourable for my investing goals.

Let me know if my math is incorrect, but I think I have the following options to achieve the 70% rule:

1. Buy with a conventional loan:

a) Buy a $50k house with $10k down and spend $20k for rehab to aim for $100k ARV

b) Buy a $75k house with $15k down and spend $15k for rehab to aim for $129k ARV

c) Buy a $100k house with $20k down and spend $10k for rehab to aim for $157k ARV

2. Buy with all cash

a) Buy a $10k house with all cash, spend $20k for rehab to aim for $43k ARV

b) Buy a $15k house with all cash, spend $15k for rehab to aim for $43k ARV

c) Buy a $20k house with all cash, spend $10k for rehab to aim for $43k ARV

Seems like all these options should work on paper for a perfect BRRRR (if we don't count closing costs, inspections, etc.) However, I assume some of these options are less realistic than others?

I am currently leaning towards the conventional loan option because the $50k-$100k range seems to provide more options. Also, my understanding that the $10k-$20k houses would require a much larger rehab that will exceed $20k. Finally, given that I will be my first purchase, it seems like the loan approval for the property would reduce the number of ways where I can screw up.

However, I recently came across some stories where people buy ~$15k houses and do impressive renovations (roof, floors, kitchen, bath) for ~$15k due to the fact that those properties are in less populated areas and have cheap rehab costs. Also, given that I will be refinancing my loan as soon as possible anyway, seems like, ultimately, the all-cash purchase is the right way to do BRRRRs - to reduce costs, increase the pool of available properties, and refinance without having to wait for 6 months.

I know I am talking a lot of non-sense above and that is why I would appreciate your advice to better understand what I am missing!

If you think that some of these deals are possible in some markets, I would appreciate hearing about which states/cities I should look further at! I previously asked about good markets with ARV of $100k and was recommended Toledo, OH - so this is the area I am currently looking at.

Thank you,

Samat

[Marcus Auerbach]

Actually a good question. I have been BRRRing in Milwaukee for over a decade and one thing you reliaze quickly is that the cost of a rehab is the same, almost no matter how much the property costs. You can even break it down to cost per sqft - in my case usually about $50.

So there is are ratios between purchase price, rehab cost and ARV. In order to find room for my rehab budget I need enough dollar spread (not in % but in actual dollars) between acquisition and ARV. This works better on higher price points. But low enough to rent of course.

A lot of people have started with a super cheap home and you will learn a lot, but you will quickly shift to more median priced homes. And also know that a lower purchase price usually equals higher risks. The lowest risk deals will be around the median purchase price for any given area.