Level of Rehab for a BRRRR

[Mike Rios]

Sup Folks,

About to close on a 3/1 REO as an owner-occupant for 190k(cash), current county assessment is 220k, ARV is about 325k and I plan on BRRRing. House is from the 60's and has a 15 year old roof. House has an illegal bathroom and illegal room extension. Ive done a sewer scope and normal house inspection and the estimated costs seems to be 20k from the inspection reports( will probably need to do a gut job). The floor plan is pretty bad but I have some good ideas on the rehab, but Its my first one and I'm at a crossroads. Its clear for rentals you don't want to spend too much on the rehab as long as you cashflow, but I don't know what the appropriate threshold is for a BRRRR because you want a higher appraisal and for the cash out refi and still cash flow at the end of month. I also don't know what To do about the code violations and how that'll effect the appraisal. Any advice?

[Mike Rios]

@Luke Ski

Hey thanks for responding I appreciate your insight. I definitely understand your perspective and was really scared about the pandemics effect on the economy and real estate market. I even considered backing out of the deal armed with a similar rationale to yours, but after doing some research I’ve decided to stick to it for the following reasons:

1.I live in Miami, deals like these do not come often, I looked for 3 months and finally got It, right now real estate prices are stable and it isn’t a guarantee I’ll find another deal after the pandemic. (An investor has already offered me 205k to take it off my hands)

2.It’s a wedge deal, I gave myself plenty of room Incase values decrease. Worst case scenario - I hold off on the refinance and just rent it out without worrying about any mortgage paydowns.

3. This recession is different than 08, it was caused by a real estate bubble, people have way more equity in there houses now and the government is offering a moratorium on foreclosures for 60 days which helps.

4. Pandemics don’t last forever, Goldman Sachs GDP released strong growth Q3, Q4 and the beginning of 2021.

5. Real estate values have actually appreciated in the 3 of the last 5 recessions. An average of 3.58% excluding the most recent recession caused by the RE bubble .

That’s pretty much how I rationalized the deal, but I am interested where you got that 30% decrease in home values though, thanks