Rehab portion of BRRRR Where to start?

Question

I am interested in the BRRRR method. I do not have a property lined up yet and thats because I want to understand the method as best as I can before jumping in.

The part of BRRRR that I would like to learn more about is the Rehab portion. Where do I start? Where does it fit in the timeline of purchasing the property and closing? Can one single contractor do it all? I'm sure from these questions will come more.

Will Barnard · Answer

You can't be consistently successful if you don't know how to estimate rehab costs. Learning this takes some time and effort but it is not rocket science, though experience will help. You will also need a team to do this and hiring a GC can eat into your spread as opposed to hiring the subs yourself. Hire the GC for the heavy lifting on your first one and hire the subs yourself and manage them.

John Leavelle · Answer

Howdy @Agustin Jimenez

Lets clear up some of the mud @Brent Coombs is talking about a little shall we.

Where do I Start?

Recommend you get J Scott's books "The Book on Flipping Houses" and "The Book on Estimating Rehab Costs".  Both available here on BP.  Doing a BRRRR is very similar to a Flip process.  He breaks the whole Rehab process down in detail.

Where does it fit in the timeline of purchasing the property and closing?

As @Peter Green indicated, as soon as you close, get the keys, and title clears.  Start swinging the sledge.

Can one single contractor do it all?

I use a General Contractor to manage the project.  He will use his own guys for a lot of the work.  But, he may also need to subcontract some work out.  HVAC, Plumbing, Electrical, Landscaping are some areas he has subbed out.  It depends on the scope of work needed.  If it's only cosmetic one contractor is probably all that is needed.

Brent Coombs · Answer

@Agustin Jimenez, by the time your offer goes in, you NEED to know what sold (ARV) comps nearby have been sold for, and, how much yours will need spent on it to bring it up to that same standard. Then you subtract that rehab price from 70% value of those comps, to arrive at your MAXIMUM Allowable Offer (MAO).

Eg. Comps sold for $100k. 70% = $70k. $70k MINUS Rehab cost, equals MAO.

Why the "70% Rule"? Because typically, Lenders only lend out 70% of THEIR appraisal.

And BRRRR relies on you getting ALL your deposit back! (As well as still showing a positive return, 100% financed!)

There. That's BRRRR in a nutshell. Clear as mud? All the best...

Manolo D. · Answer

@Brent Coombs Yup, metro areas in CA has the same number of cash flow properties as unicorns. Well, in MY opinion. If you don't count appreciation and tax breaks, it's not a play for someone who wants small drip monthly income.

Brent Coombs · Answer

Exactly. Which leads to another generalization: Areas that only get 0.5%/m RENT return, aren't suitable for BRRRR!...

Brent Coombs · Answer

@Agustin Jimenez, just to be clear, you do NOT "get an estimate on the rehab so I can calculate the ARV". Your FIRST step is to know what the ARV would be - from recently SOLD (ARV) comps. (ie. Nothing to do with your rehab cost).

But then, your carefully calculated specific rehab cost is DEDUCTED from that (ARV x 70%) figure, to arrive at your MAO.

Agustin Jimenez · Answer

Hi @Valerie Hiscoe I'm sure my question was not clear enough. What I was trying to ask was where does the estimation of the rehab fit in between seeing the property, making an offer and buying it. But the guys above helped me out with that. First get an estimate on the rehab so I can calculate the ARV which then will give me my MAO. I've purchased both books that @John Leavelle recommended so I'm sure once I read them I will have an even better understanding.

Thank you Valerie and thank you @Will Barnard for the tips on GC and sub contractors.

Valerie Hiscoe · Answer

I'm concerned that you might not fully understand the BRRRR method when you ask about the time line between purchasing and closing. BRRRR stands for Buy (and close), Renovate, Rent, Refinance, Repeat. You need to know the cost of the renovation and the price you'll be able to rent and refinance the property for though before you even make the offer. You definitely don't want to do any of the R's before closing.

I probably misunderstood your question, but just in case.....

Rehab portion of BRRRR Where to start?

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