Understanding BRRR Strategy

[Tia Wilson]

I just finished the BRRR Book and I'm trying to understand the purchase process. IOT to properly BRRR I would need to buy a house roughly 75% undervalue, correct? For example if I saw a house for sale for 180K I would need to buy it at around 135K? Can any BRRR vets help me out please? Thanks yall.

[Kevin Romines]

I work with a lot of flippers as well as BRRRR modelers. Here is the formula of what the BRRRR model is. 70-75% of ARV, minus rehab costs equals your maximum allowable offer.

So lets say the ARV will be $300,000 so 70% of AVR will be $210,000 minus lets say a $50,000 Rehab = $160,000 as your max. allowable offer. But even this doesn't really give a complete picture because you also need to factor in your carrying costs and your down payment on the hard money or fix n flip loan. So the actual formula is 70% of ARV, minus rehab costs minus carrying costs, minus down payment.

If you can find a home that will work for that formula, when you are done rehabbing it and you are at 70% ARV, you will then be able to cash out refinance it to a max. of 75% and get all your cash back out of the deal. The difference between your final position at 70% and the cash out at 75% would be that the additional 5% is your refinance closing costs.

Typically if you just look at what you can offer on a home versus the ARV, you are buying the home at between 50% to 60% max. of ARV depending on what the rehab cost, carrying costs are at? This is why its hard in todays market to find a deal that fits the formula. It can be done, but even my more experienced flippers are struggling just because the market has been to hot for a few years now.

I hope this helps?