FIRST REHAB PROJECT!! Looking for a bit of Guidance with BRRR!

[Kyle Sanders]

Hi Everyone!! 

I apologize for the long post, but might as well share the details:) This is a very exciting time for us as this is our FIRST REHAB PROJECT! 

We are not completely new to the game, as in my business partner and I own 2 turn-key multi-family duplex properties that have required minimal repairs.

However with this new venture, we are trying to scope out our first deal to BRRR and see how things turn out. To give you a quick outline, the property is a Foreclosure that is listed for $54,900. In this area, that is high for an 1,147 Sqft, 2 bed, 2 bath that will need a PREMIUM facelift, as in the structure is still good but most everything will be replaced but the studs due to everything being outdated. That all being said, we are starting our offers low around $30k and looking for the bank that owns it to come down quite a bit and settle somewhere advantageous to both parties. Hoping that we can refinance and/or sell the house for ~$110-130k. (House next door is listed for $124k with 1,165 Sqft, 3 bed, 2 bath)

What we are looking for is a bit of detail on how to underwrite contracting fees and materials fees and if anybody had any quick formulas to run through this? 

Lastly, if anybody has a good idea on how to predict reappraisal and refinance expectations, please let me know about your experiences!

If you made it this far, we appreciate your time & interest and PLEASE leave a comment to help us out! (even if its just some motivation:])

We look forward to hearing from BP Forums and everybody involved in this community!! Let's get after it!!

[Marshall White]

@Kyle Sanders

Hi Kyle,

The BRRRR strategy is my favorite strategy right now and definitely one of the best out there. Regarding your first question are you asking the best way to estimate labor and material costs for the project?

As far as predicting the ARV (After Repair Value) you can actually have the home appraised beforehand and provide the bid from your contractor to your appraiser. This is referred to by some as "As to be completed" appraisal it may be called something else where you are located. For example, the appraiser will tell you the home is worth 45k currently and if you complete all of these renovations in the bid it will be 100k or 120k etc. It costs more up front because the home will have to be appraised again later but this is the most accurate way to know the ARV in my opinion. Also, you said the house next door is listed at 124k but that won't be a comparable property until it is sold. If I was in your situation I wouldn't even consider that a comp until then. What are the sold prices of other comparable homes in the area around the property?

In terms of what to expect during the refinance process, this is all dependent on your lender and personal situation. Are you completing this project in an LLC or your personal name? If it's in an LLC you may have to wait for a certain amount of time before you can refinance the home (some banks have "Seasoning Periods"). If it's in your personal name then your personal financial standing may have to be cleaned up before you can refinance the home. Luckily, you can get just about all of this information upfront from by having a conversation with your lender.

Another side note, you mentioned that you may keep it and refinance the home or sell it after the renovations. Make sure you do all of the calculations for both scenarios before you make a decision. Generally, If you sell the home you will pay capital gains tax but if you keep the property you will receive tax breaks such as depreciation. I'm biased towards holding properties but that's based on my personal goals so make your strategy aligns with your immediate and long term goals.