Rookie BRRR in Maine

[Kevin Gallagher]

I am undercontract on a 1910 house in a small town. There is a great rental market ($1200 for 2/1 apartments) but house prices are still pretty low. The house does not need much to have it rentable but does need serious upgrades to be a top property in the area. Is it worth it to do a complete gut job and basically make it new or should I patch it up and get it "good enough" to rent. Purchase price is 60k, patch up reno is 12-15k, full gut would run near 60k. ARV on the patch job is 175k pretty much either way. Could maybe get an extra 15k after the full rehab. I am a GC so I have some control on the rehab budget if that makes a difference in the calculation.

With this being a buy and hold I am tempted to go in and do the full gut and fix everything up to current standards even though it's not required. Is the payoff on decreased maintenance/standardization of units worth the upfront cost. I am having a hard time with the math to figure it out.

thanks 

[Nicholas L.]

@Kevin Gallagher

there are a couple things overlapping here

first, with a BRRRR, one of the goals is to boost the ARV as much as you can so that you get reimbursed / paid back on the refi. so, whatever the comps that you need to target are - you go for those

in terms of getting desired rents, certainly finishes will come into play a little bit

and then of course you want a safe, high quality rental

one thing to note that is not often pointed out is that, with a BRRRR, the higher you boost the ARV, the higher your mortgage payment is going to be and the lower your cash flow

so a few things to consider here

hope this helps

[Rich Davis]

The classic renovation question:

Where do you start and where do you stop?

All renovations follow a law of diminishing returns curve.  Every additional dollar spent yields less return than the previous dollar.

That stopping point is also market specific, and class specific.