Why your BRRR is going to lose money

[Matthew Irish-Jones]

Top ten reasons you will lose money on your first BRRRR. This list has been pulled directly from the school of hard knocks

Generally speaking and based on NY building code

1. You think the cheapest house has the most margin

2. You don’t understand the permit process and will do some work that will require a permit and have to undue it later when an inspector catches you.

3. You don’t understand asbestos and demo work. You will find out later when a test should have been done. There will be pain.

4. You can’t see knob and tube wiring when you open a wall. But the inspector can.

5. You think chipping paint on the interior and exterior of a home built before 1978 is no big deal and you will sand it down and repaint it

6. You got a quote on all the apartments to get the place rent ready and missed all the mechanicals

7. You didn’t see any reason to replace all the plumbing, and you don’t know the difference between a copper, lead, and galvanized main line.

8. You didn't know that once you start your BRRRR and an inspector catches wind, you need to update every mechanical system and you have to do it in the proper order. Remember that knob and tube you couldn't identity???

9. You will underestimate the rehab by as much as 50% from the financial side and the time side.

10. My favorite one you will finally find a contractor that can do the work at 65-75% of the cost of your other three quotes. This will be the last happy day of your entire BRRRR.

How to avoid all of this? Traditional financing, light value adds where you leave the equity in the property, and you save for another 7 years to get your second property, and on, and on.

Real estate is a slow long play. People starting with the BRRRR mentality have the wrong mindset from the start.

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[Marcus Auerbach]

Fantastic list Matthew! After more than a decade of BRRRs in Milwaukee I can add a few more items - I paid for it:

11. You take on a house that needs literally everything new and underestimate the accumulative cost effect

12. You bought a small house because it was cheap and now your rent and appraisal are low

13. You bought a house on bad location (or an awkward floorplan) just because it was cheap and nobody else wanted to buy it

14. You do not replace the roof (or HVAC or windows or siding) because there was still some life left, and 2 years later you have to

15. You saved on materials, because you did not understand the difference between commercial grade and cheap (plastic shut off valves can cost you $$$!)

16. You did not want to pay $4,000 to get that huge old dying tree removed, so mother nature did it for you

17. You thought the tenants would actually maintain, weed and mulch a dozend flower beds..

18. You finished the basement, but did not invest in a new sump pump, burried downspouts and improved exterior grading

19. You thought you could save money by replacing only half of the bathroom instead of a full gut

20. You thought you could save money by painting old cabinets and installing new stone tops on them