My 1st Possible BRRR... Need advice!

[Kristie Pate]

I placed a $110k cash offer on a property listed for $485k in Texas by a huge lake where all the surrounding houses are on bigger lots & are decked out to the hilt, 2-story newer built homes. This place needs a full renovation/gut & was built around 1990.

After running comps I determined this property was closer to a property that is a single story that was flipped then sold 2 months ago for $350k... This was what I based the comp on since it didn't make sense to compare this place with the big dogs, even though I kept second guessing myself.

I go out to see this place tomorrow with the buyer's agent. Not only am I asking if the offer was priced right but I really would like to do a BRRR, plus this place can be an amazing AirBnb since the estimated rent is $3,500 in this area.

I can borrow against my 401k to put at least 10% down (don't know how fast that happens), but I don't know how to get the $ for the rehab cost I calculated at $120k... I've overloaded my brain with all the wholesaling info & I need guidance in case I win this one.

Question 1 was - did I make a good offer from a $350k with $120k towards for rehab.

Question 2 was - where do I need to focus to get the rehab $ (my credit is not great)

[Randall Alan]

Several issues here. If this is an investment home, 10% likely isn't going to cut it when financing it. Investment properties usually require 20-25% down. Then there is your "not so good" credit. That can be a deal breaker right off the bat - as it could either make financing impossible, or at least jack up your costs. If you were going to be be living in the house, the FHA does offer a program called 203K renovation and repair loan... but it's not for investment properties.

 No one is going to be able to truly answer the questions about "is it priced right, because that all comes down to how much rehab it needs, and we don't know how you got to your $120k estimate - and you haven't even seen the property in person.  From personal experience, things can change A LOT when you do you walk through.  Things not even related to the house itself can come into play - how is the neighborhood, do you know what your taxes and insurance are going to be, will it need flood insurance, how is the foundation, the roof, the AC, the plumbing, the electrical - things you can't always tell from pictures.

As a general rule for myself, if I can't make $50,000 on a flip property, it's not for me... and usually I'm actually looking for closer to $100,000 (net) after reno.to be happy and know that if my rehab runs high, or my sales price runs a little low I will still be ok.  So to that end, assuming your rehab numbers are right, $230-240k into a property worth $485k would definitely be a win.   Do you have experience with AirBnb? - because you have to base your profit numbers (as a hold property)  on a percentage of occupancy... so ask yourself, "How many nights a year does it have to be rented to make the money I need it to make?".

Your post doesn't say where you are from - but it makes me ask - is this a local purchase for you, or are you from out of state?  Remote managing ANY property like this can be complicated.  Property management is EXPENSIVE - read: "about 1/3 of your profit" on a typical financed property.  And if you AirBnB it - you have constant turn over and the need to have cleaning services on continuous call.

As for the BRRR - know that you have to own the property for 6 months before you can BRRRR with a typical (Fannie Mae) lender. If you don't have your $120k in renovation expenses already funded - don't expect to get them from the bank or the BRRRR - because it won't appraise to value until after it has been renovated. You may want to think about partnering with an experienced flipper where they could bring additional resources (money) to help make the deal go through.

Not trying to be the stick in the mud on your deal, but I've done a number of flips, and have about 40 rental units we manage.  A lot of what you are proposing is pretty complex - especially if you have little experience, average credit, and little reserves.  It would be really easy to get in over your head real fast.  For instance - they accept your offer, you put your escrow down, but then you can't get financed; or you actually get financed, but can't find the money to do the rehab.  Or your rehab numbers miss something big and you can't get the property finished.  You never want to be in a situation where you don't have a plan B on how to get the deal across the finish line... so be careful! 

I wish you all the best!

Randy