Hiring the right contractors for a BRRRR

[Oladimeji Sonibare]

Greetings, All.

For those of us that are experienced in BRRRR, I'm still on the first R of the process. When you're shopping around for the best contract work for your rehab, how much of your investment do you expect to get in return? To be clear, for every dollar you invest in your rehab, how much do you expect the value of your home to increase? What's a reasonable ratio?

Thanks in advance.

[Kevin Sobilo]

I don't look at the ratio of dollar spent in rehab versus the expected increase in value for two reasons.

First, those are only parts of the deal not the whole deal. On some deals you might get better deal on the buy versus others for example. So, the measure of a deal isn't in the interim steps.

Second, the value to begin with and end with are estimates! You might buy a house for $50k but it might be worth $75k. Its just an estimate. When you refinance at the end your appraisal might be $150k (estimate) but if you sold the property you might get $165k. So, because you would be using estimates that number could have a lot of wiggle to it. 

What I would like to find is where:

Purchase Price + Rehab + Holding Costs <= ARV * 75%

The 75% is the expected amount of the ARV I will be able to cash-out on a refinance. If I can get ALL my money out or MORE that is a good BRRRR deal because I will have acquired an income producing asset in very good condition without having any of my initial money tied up in it.

Every deal is different. So, I don't think your idea of ratios will work. Create a process to screen out deals that won't work and to deeply analyze ones that might.