Does BRRR only apply to distressed homes? What about outdated?

[Simon K.]

Does the BRRRR strategy mostly apply to distressed/gutted homes? What if a home is just outdated and needs modernizing? Will your ARV ever break even with the Buy + Rehab costs for an outdated home? For example, a lot of what is being touted by the BRRRR strategy is applied to distressed homes that are bought for, say, $50,000. You add in rehab costs of $30,000. The ARV becomes, say, $120,000 and so you recoup the 80,000 when you refi. Now what if you bought a home that was simply outdated and needed some work and a few repairs here and there. Let's say your purchase the property for $400,000, put in $50,000 of rehabbing. Is it realistic for the ARV to become $562,500 so you can recoupe your costs when you refi? Or is that simply not realistic and does not happen often? As someone who is looking to purchase their first investment property, I would feel more comfortable with an outdated home that simply needs some modernizing. A fully distressed/gutted home seems very daunting for a beginner. What are your thoughts?

[Nicholas Lohr]

Yes definitely. I've BRRRRed everything from a duplex to a 6-plex and none have them have needed to be gutted. It's all been cosmetic repairs.  

What you should focus on, along with the repairs, is can you drive the rents up to a point that will produce the value where you need it to be. 

For example, I found a 6-unit of all 3-bedrooms that was clearly being mismanaged. The prior owner was charging under 1000 bucks for each until which was unheard of in my city. To prove it I went on the rental search sites, filtered by 3 bedrooms only, and bingo there was not one SINGLE 3 bedroom rental listed for under 1600 in the whole city. Then I ran the numbers at 1600 per unit using the BP BRRRR calculator and even with putting a number that was way high for repairs the returns were still in the 30% range if I remember correctly. I know I recouped just about all of the $ that went in.

Look on the rental sites and search for what you can realistically get for rents and work backwards from there.