How to determine the Appreciation after renovations in my area

[Grayson Grzybowski]

Hey all. I recently use to be a Pro member but had to put my membership on hold after buying my first home a month ago. I tried working in the Pre foreclosure market for a year and had no luck. I wanted to consider trying this method and wanted to know this:

If I borrow money from a lender, go in on a deal with renovations, how can I know if my Refi 6months to a year later will be enough to cover what was borrowed? Please fill me in, as I would like to take these risks to help accelerate my portfolio 

[Jake Baker]

@Grayson Grzybowski

I recommend checking out the BRRRR calculator. https://www.biggerpockets.com/brrrr-calculator

This will show you the key metrics before and after refinancing a property.

[Stewart Slack]

At the end of the day, its going to come down to the quality and confidence in your post renovation comps. The comps are going to be the basis for any refi on the property. A good agent should be able to help you finding the best comps. Obviously there is always market risk when holding a property, and the market could go up or down during that 6 month hold.

[Preston Dean]

Quote from @Grayson Grzybowski:

Hey all. I recently use to be a Pro member but had to put my membership on hold after buying my first home a month ago. I tried working in the Pre foreclosure market for a year and had no luck. I wanted to consider trying this method and wanted to know this:

If I borrow money from a lender, go in on a deal with renovations, how can I know if my Refi 6months to a year later will be enough to cover what was borrowed? Please fill me in, as I would like to take these risks to help accelerate my portfolio 

 @Grayson Grzybowski

there's no way to predict it man but at most you can get your realtor who helped you buy to pull cmops and calculate an ARV for you

[Grayson Grzybowski]

Quote from @Jake Baker:

@Grayson Grzybowski

I recommend checking out the BRRRR calculator. https://www.biggerpockets.com/brrrr-calculator

This will show you the key metrics before and after refinancing a property.

@Preston Dean  Thank you for this. 

[Bryan Montross]

@Grayson Grzybowski, Let's run some numbers to show you how this should work out. Let's say you bought a property for $100K with 20% down. You will owe the bank $80K. Now let's say you put $50K into the property for rehab. That $50K rehab should be adding at least $50K in value you to house, but let's say the market is really bad and the rehab you did wasn't so much value add. So maybe the property is now worth $125K. If you refinance the property now the loan would be $100K at 20% down and $80K would have gone to repay the original loan.

First, if these are your numbers for rehab cost and after repair value, it is probably not a good deal to begin with and you shouldn't be doing it. But even if the numbers looked good going in and a black swan event happened, it would take a lot to lower the value of the house below your purchase price if you are doing value-add renovations. Don't expect to get all your money out, but you should always be able to cover the first mortgage. I hope that helps you understand some of the risk.

[Grayson Grzybowski]

@Bryan Montross Thank you so much for this! Its a big help

[Danny Jim.]

Quote from @Grayson Grzybowski:

Hey all. I recently use to be a Pro member but had to put my membership on hold after buying my first home a month ago. I tried working in the Pre foreclosure market for a year and had no luck. I wanted to consider trying this method and wanted to know this:

If I borrow money from a lender, go in on a deal with renovations, how can I know if my Refi 6months to a year later will be enough to cover what was borrowed? Please fill me in, as I would like to take these risks to help accelerate my portfolio 

Hey Grayson I would love to connect and help you out!