How much would you spend on your first BRRRR property?

[Kain Kim]

I currently reside in Atlanta, Georgia and possess approximately $1M in home equity from my primary residence. My intention is to acquire my first BRRRR property within the same town.

For financing, I am considering either a HELOC or a cash-out refi. Given that I lack the immediate funds for a down payment, I anticipate relying on the loan for this purpose.

Could you kindly advise me on an appropriate budget for my inaugural BRRRR property? Specifically, I am seeking guidance regarding the suitable price range for both the property purchase and the subsequent rehabilitation costs.

Initially, I had contemplated a purchase price of around $300,000. However, as I engage with other investors, it has come to my attention that they often acquire properties of significantly lower value.

Given the context, if you were facing a similar situation, what range of expenditure would you consider reasonable for your initial BRRRR property?

[Randall Alan]

Quote from @Kain Kim:

I currently reside in Atlanta, Georgia and possess approximately $1M in home equity from my primary residence. My intention is to acquire my first BRRRR property within the same town.

For financing, I am considering either a HELOC or a cash-out refi. Given that I lack the immediate funds for a down payment, I anticipate relying on the loan for this purpose.

Could you kindly advise me on an appropriate budget for my inaugural BRRRR property? Specifically, I am seeking guidance regarding the suitable price range for both the property purchase and the subsequent rehabilitation costs.

Initially, I had contemplated a purchase price of around $300,000. However, as I engage with other investors, it has come to my attention that they often acquire properties of significantly lower value.

Given the context, if you were facing a similar situation, what range of expenditure would you consider reasonable for your initial BRRRR property?

@Kain Kim

@Kain Kim
Your question is really too wide to get too specific.   Your budget will be driven by each specific project…there is no way to quote what you should spend specifically. Flips require a wide skills set to execute.  Do you have those?  Do you have vendors that can help you? Finding dependable help can be challenging.  If you are inexperienced in real estate and flips in particular you can get exploited very quickly.  We can get a small bathroom rehabbed for about $6,000.  My in-law just paid $18,000 for the same type of job because they didn’t know better.  

More important than the purchase price is the spread between the purchase price and the ARV. You need that gap to be sizable! Keep in mind that you are going to pay closing costs to buy the property, then pay them again when you sell the property. This could easily be $10,000 -$15.000 you have to cover beyond the cost of the property or rehab. Let's say you net $50,000 profit from your flip. If you keep your profits, you will then owe 15-20% of that to capital gains taxes. That could be another $10,000 you don't see from your efforts. Point being, it takes a really good spread to justify the rehab, make your profit, plus cover all the expenses it takes to acquire and dispose of the property and the taxes.

To extract your equity you will have to either do a heloc or a cash out refi. Todays rates on those are probably 8-10%.  Not cheap either.

I would recommend starting small. Figure out if you even like flips.  Buying into  a major / complicated project when you figure out you aren’t up for the challenge could be costly. So maybe under $100,000 to acquire, under $30-40,000 to rehab, and sell for maybe $200,000?  That would probably be a small enough flip but still get your feet wet

All the best!

Randy