BRRRR home pricing?

[Jim Butterfield]

If a house has an ARV of $150k and currently needs $45k of work, is there a way to come up with a price? i know every seller is different. some think there trashed house is still a Gem and want premium dollar. How do you come up up with a offer price for the trashed home?

[Jon K.]

First off, I'd suggest getting the The Book on Negotiating Real Estate as I found it to be well worth the money.

I always start by asking the seller what they want to take home from the sale of the property. Note that that is different than the sale price due to closing costs, outstanding mortgages, liens, etc. Not everyone is willing to volunteer a number but those that do start to give you an idea of their expectations. Once in a rare while someone will say a number that is actually below the range of what I was prepared to offer.

I will evaluate every lead as a flip, BRRRR or an assignment to give myself options. Since you posted this in the BRRRR forum this is the formula I use to determine the bottom of my range:

75% of ARV - Closing Costs of Refinance - Cost of remodel - Closing Costs of Purchase - Carrying Costs - Buffer for Negotiating + Expected cash flow for 8 months

I add 8 months of expected cash flow because it makes sense to me to view an individual BRRRR deal through the lens of a 1-year period. I find it often roughly offsets the carrying costs from my HML/utilities/taxes/insurance during the remodel.

The top of my range is subjective. I don't mind leaving capital in a BRRRR deal provided there is equal or better equity to match BUT it also has to cash flow to my standards while fully leveraged at 75% of the ARV. The better the cash flow, the more I'm willing to leave in it.