Pending - In Review - BRRRR in Lemon Grove, San Diego

[Juan Mora]

I have been watching from the sidelines for a few months now and narrowed down what home I can buy and renovation budget.  Looking for feeedback on this potential deal:

1832 Englewood Drive

Lemon Grove, CA 91942

Purchase Price: $600,000

Renovation Budget $90,000

ARV: $745,000

[Dan H.]

i have done quite a few BRRRR in San Diego and this is the toughest market for BRRRR since I started. So my remarks likely apply to 95% of units and probably 99.9% of MLS properties.

Issues:

It is in nowhere near bad enough condition to get a good return on the rehab.  To just recover the cost of the rehab, the rehab must return 1.25 times the cost.  To recover all costs requires value add far greater than this ratio.  I do not do a value add unless it projects a return in excess of 2x cost and over $30k beyond cost.  This is because rehabs require work and have risk.  My view is this rehab value add may be challenged to recover just  the expenses.

refi appraisals in San Diego are conservative.  Expect it to come in at least 5% low and you should be thrilled if it does not happen.

Assuming Zillow has the configuration correct (2/1) the rent is between $2.15K and $2.45k. Rentometer has $2.4k average and $2.45k median. BP calculator has average $2.15k. $690k with $2.4K rent provides a ratio of 0.34%. This is a horrendous ratio. PITI at 80% LTV on purchase price only (not including rehab) is $4.13k. Add in maintenance/cap ex, PM (include PM cost even if self managing as it is a job), and miscellaneous. This is going to be over $2.2k/month negative cash flow.

I am on quite a few wholesaler lists but have not purchased since Dec 2021 (purchased $4m that month). I see many offers that can work as flips, but they have negative cash flow after rehab and refinance (using 80% LTV) so are not good BRRRR candidates. The MLS listings are tough investments using any process.

Good luck