Can We Buy, Rehab, Rent, Refinance, & Repeat It?

Buying & Selling Real Estate
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Can We Buy, Rehab, Rent, Refinance, & Repeat It?

Joshua Manning
Realtor · Shreveport, LA · Member since 2015 · 79 posts · 23 votes

Corny Topic Title aside. 

This post is about a potential BRRRR Investment that I found in my area. Full disclaimer this is pretty much just a hypothetical deal, as I am currently not in a position to purchase this property at the moment sadly. Mainly want I'm looking for is whatever or not the estimates I have for this property seem OK. And with MAO that I got using the 70% rule do you think I could potentially negotiate the buyer into selling this property. I know that these I kind of vague as you guys only have limited information on the property, so at the very least tell me if this sounds like a good deal to you. If so why, and if not then why not? I'm trying to train myself into being able to analyze potential deals better, that way when I get ready to buy my first property I can do it with the numbers as precise as possible, and with as few mistakes as possible.

(P.S. If it wasn't clear above this is indeed a real property that is currently for sale. The ARV is based on real comps in the area. The rehab costs are mainly rough estimates with minimal research since I'm not actually able to take on this deal, which is also why it is a hypothetical deal)

Asking Price: $160,000

Sq Ft: 7000

Bedrooms: 5

Bathrooms: 5

After Repair Value: $310,000

ARV * 70% = $217,000

Rehab Costs:

Kitchen Remodel: $25,000

Refinishing Floors: $10,000

Patio Deck Re-Paint: $1,500

New Paint Job: $3,000

New Window Shutters: $1,100

New Concrete Driveway: $6,000

New Doors: $9000

Bathroom Remodel: $20,000

(4K per Bathroom)

Landscaping: $2,500

Misc. Flooring: $1,500

Pesk Control:$1,050

Light Fixtures: $525

Cleaning (Before & After): $1,000

Misc. Expenses: $2,825

Total Rehab Cost: $85,000

Maximum Allowable Offer: $132,000

Problems with House:

Dirt and Grime Literally Everywhere

Bug Infested

(I'm talking bees, wasps, spiders, mosquitoes, etc)

House is Outdated:

(Wierd Bulky Ceramic Tiles everywhere,

Tin RooF)

Located far away from main part of city

Has A Garage but the Garage is basically unusable. At least for a car anyway.

I figure since there are so many issues with this house that I would have to see to and take care of that I could negotiate the seller down to a lower price.

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Virginia F.
Oakland, CA · Member since 2015 · 27 posts · 16 votes
9y
Brian G. https://www.biggerpockets.com/renewsblog/2014/02/14/70-rule-bible/
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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Joshua Manning

    What type of property is this? SFR, 2 - 3 unit multi or 5 unit small apartment? Your kitchen rehab costs seem very high! If this is a rental you don't need top end finishes. The same goes for bathrooms. If this is a single family home you better make sure there is a rental market for such a large house.

    You did not provide any rental information or projected cash flow analysis.

    How would you be financing the deal?

    Would you plan to gut the house and put up new drywall?

    0Reply
  • Joshua Manning
    OP
    Realtor · Shreveport, LA · Member since 2015 · 79 posts · 23 votes
    9y

    @John Leavelle Thanks for the response and those are excellent questions.

    And yes this is a SFR. The house in a college town and the rental market here is huge and is really booming right now, so I'm pretty sure I would be able to rent it out as long as I market it well.

    As for the kitchen and bathroom remodel costs, what would seem to be more reasonable cost to spend on those? I assumed that since it would be a BRRRR property I would need pretty nice improvements to maximize the ARV value.

    The proper would rent for about $2,150 per month

    I'm expecting the monthly mortgage payments to be from around $1,500-$1800 per month initially. Since I would have to use a hard money lender initially. And then refinance to a lower rate later on.

    So the initial cash flow would be $350 - $650 per month. and then hopefully more after I refinance.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    How did you come up with $132k for the max offer? That's not the 70% rule that's much less.

    0Reply
  • Virginia F.
    Oakland, CA · Member since 2015 · 27 posts · 16 votes
    9y
    Brian G. I believe he subtracted the total costs of repairs from $217,000 (70% of the ARV) to arrive at his maximum offer. Does that follow the 70% rule?
    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Virginia F. 70% rule is ARV minus Rehab Costs multiplied by 0.7

    0Reply
  • Virginia F.
    Oakland, CA · Member since 2015 · 27 posts · 16 votes
    9y
    Brian G. https://www.biggerpockets.com/renewsblog/2014/02/14/70-rule-bible/
    2Reply
  • Joshua Manning
    OP
    Realtor · Shreveport, LA · Member since 2015 · 79 posts · 23 votes
    9y

    @Brian Garrett Not trying to start an argument or anything but I don't think that is right.

    The 70% rule is the ARV * 70% and then minus any repair costs.

    Its set up this way especially for BRRRR properties since most lenders will only lend up to %70 of the New Appraised Value (i.e. the ARV) in a cash out refinance. This ensures you will be able to pull out your entire initial investment, including your rehab costs in the cash-out refinance.

    Here is the link to the BP 70% rule calculator you can use my numbers and see for yourself.

    https://www.biggerpockets.com/house-flip-estimatio...

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Joshua Manning The way I said works just fine especially for BRRRR. I use that formula to analyze all my deals and the numbers work out every time.

    0Reply
  • Joshua Manning
    OP
    Realtor · Shreveport, LA · Member since 2015 · 79 posts · 23 votes
    9y

    @Brian Garrett That's awesome man, there's definitely no one way to invest in real estate. And many different ways can bring about success. I'm glad that way works for you!

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  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Joshua Manning The 70% rule can be done a variety of ways. That's the point here. It's just a general rule of thumb and guideline anyhow. Don't rely on that to make a deal.

    0Reply
  • William C.
    Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
    9y
    7000 sq ft SFR? That's seems Huge. Almost too big. Can you chop it up into smaller units?
    0Reply
  • Joshua Manning
    OP
    Realtor · Shreveport, LA · Member since 2015 · 79 posts · 23 votes
    9y

    @William C. Possibly so the 7,000 Sq Ft includes a pretty huge Garage that could probably be converted into another room. And there is also one main kitchen in the property but also two smaller kitchen like areas, as well as two living areas in the property. So it would be doable although the areas are all connected (aside from the garage) so I don't imagine the separate areas would have much privacy.

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