Houston, TX. BRRRR Method explanations

[Federico Gutierrez]

Hello BP investors, I am a small time Buy and Hold investor at the moment looking to expand into BRRRRs.

Could someone walk me through a BRRRR they have done before??

I am knowledgeable in the construction industry / Construction management / finance management / etc. hoping to expand my investments into BRRRRs for the Houston, Texas area. 

[Andrew Postell]

@Federico Gutierrez thanks for posting here.  Bigger Pockets also has a very active Texas forum if you ever want to post in there.

This might be a tall order just because of the amount of time it would take someone to detail everything that goes into it but I'll provide a few suggestions that might be able to help.

1. BUY - we normally have to buy properties "off market" to make the deal work in Texas.  When you buy it's likely you would need financing, so knowing the terms of your financing will be important here and on the REFINANCE step as well.  The other piece of math you need to know here is how much "holding" costs you will incur.  Meaning, payments to your loan, utilities, etc.

2. REHAB - not only do you need to know your REHAB budget but you need to make it FIT into your BUY financing. For example, if your BUY financing will lend you 75% of the ARV, then your purchase price + rehab should not exceed 75%...or if it does, you need to be ok with spending money out of pocket to do it. I would recommend to NOT exceed 80% of the ARV with your BUY and REHAB steps. Many others would recommend lower figures.

3. RENT - pretty self-explanatory but we do target specific properties based on the rental income. In Houston, you should not be exceeding $200,000 on the ARV of the properties you target. Higher valued properties do not rent as efficiently as lower valued properties.

4. REFINANCE - Here you will also need to know the terms and conditions for your financing BEFORE you make your offer. This step might affect your offer. And step will ABSOLUTELY test your ability to calculate the ARV. Here the loan will appraise the value of the property in it's fully rehabed state. You need to be accurate with your math in the beginning for this step to work correctly.

5. REPEAT - Hopefully you did everything right, got nearly all your money back and can do it again.

The skills you need to make this work:

1. Calculating ARV
2. Calculating Rehab costs
3. Calculating your HOLDING costs
4. Knowing the Terms and Conditions for your BUY and REHAB loans
5. Finding Properties - probably the hardest step of them all

*WHEW* I know that was a lot but hopefully it helps in some way.  Thanks!