How to practice BRRR deals

Question

Hey everyone!

I am working on becoming better at analyzing deals and listening to the advice of @Brandon Turner to analyze a deal every day to become more comfortable. I am very interested in the BRRR strategy and want to hone my skills on this kind of analysis, but am unsure about how to calculate repair costs with looking online and crunching numbers on the calculator. I know this question goes a million layers deep, but do you just go by the pictures that are posted online, or use a general calculation per square foot?

Thanks for any insight!

John Leavelle · Answer

Howdy @Eric Davenport

Although some experienced investors may start with square footage or even the pictures, most go from a thorough walkthrough of the property.  If you are strictly wanting to practice calculations, then, you could use sq. ft. and apply several different price metrics.  For example, Cosmetic ($15 sf), Moderate ($20 - $25), Gut job ($30 - $50).  That will at least show the effect each has on your calculations.

I strongly recommend you get J Scott’s “The Book on Estimating Rehab Costs “ available here on BP.  It will provide you with a good foundation of the process.

When you are ready find a good General Contractor (or 3) to walk a property and give you a bid.  Make sure you compensate them for their time.  Once you place a property under contract have it inspected.  Then develop your Rehab estimate from there.  I do my own estimate based on J Scott’s method, along with having my GC walk the property with me.  We create a preliminary estimate.  Once a property is under contract it is professionally inspected.  We use that report to reconfirm or adjust our original estimate.

Go to local REI club meetings or meet-up groups to find investors willing to show you the ropes.

John Leavelle · Answer

@Eric Davenport

Regarding when the GC walks the property depends on the deal and the timing.  I would say “All the Above “.  I’ve gone by myself, my Realtor has gone by herself, me and the GC, Her and the GC, all of us together.  The main thing is we take lots and lots of pictures to share which we use for an initial Rehab estimate.  I put one property under contract purely based on my Realtor’s opinion and pictures.  We ended up buying the property, but, had to adjust the Rehab numbers after the inspection during Due Diligence.

I always include an inspection contingency with my offers just encase something severe turns up during the inspection.  I also try to escort the inspector so I know what they are looking for.

When you start having contractor’s looking at the property you should compensate them for their time.  Otherwise, yes, it would make it difficult to develop a relationship with them down the road.  Especially if you do not have it under contract.  If have a property under contract and you have a good idea what you want included in your SOW, then, you can have multiple contractor’s bid on the job.

The only way you can learn this business is by asking questions and taking action.  So ask all the questions you need to feel comfortable.  That is what BP is all about.

John Leavelle · Answer

@Eric Davenport

I have completed 4 BRRRR deals so far.  SFR, Duplex, 2 4-Plex’s.  Was doing 2 per year.  Now on hold, working on New Build 4-Plex on same lot as the Duplex.  May be moving into notes also.  Still analyzing and reviewing my business plan.  Will eventually be upgrading to Small Apartments with 1031 Exchanges of my current properties.

Eric Davenport · Answer

@John Leavelle Good relationships are crucial. How many BRRRR properties have you done and how many are you usually doing a year?

John Leavelle · Answer

@Eric Davenport

He is a business associate of a long time family friend (also a GC of New homes).  I have used other contractors for small jobs.  Was happy with some and not so happy with others.

Developing good relationships with all types of contractors is extremely important to me for this type of strategy.  If they cannot do the job they can usually refer a good replacement.  Regardless I always double and triple check the work.  This is done by myself, Realtor, and/or my PM.

John Leavelle · Answer

@Eric Davenport

No.  I still work a W-2 job.  I average at least 60 hours per week.  So I really don’t have the time to spend managing projects like that.  I try to keep it as passive as possible.  So I am content managing the managers (Realtor, GC, PM, etc).  However, if you have the time go for it.

Eric Davenport · Answer

@John Leavelle Thank you for the detailed response and insights, people like you are what make BP great.

Have you ever essentially been your own GC and just employed sub-contractors yourself or have you always gone through with a GC? I am thinking about doing this to save on expenses and learn the process when I am fully working with GC's in the future.

Eric Davenport · Answer

@John Leavelle Thank you for the suggestion! I definitely plan on reading J Scott's book, it seems to be a staple for any newbie rehabber. Do you always have the GC walk the property and give you the estimate before you are under contract? Is this usually something you do on the first walk through, or do you have the GC come in after you've seen it to vet it yourself?

My wife and I have the time now and not necessarily the money, and are hoping to do at least our first rehab mostly on our own. If anything, just to gain experience that goes into a full rehab so we know how to communicate what we want with future GC's. We are so new to this so excuse the ignorant question, but can we hire a GC to walk through the property and give us an estimate of what they think materials may cost and then use this to rehab ourself? Or would this be non kosher and hurt relationships with future GC's?

Yes you're right, meeting other investors is essential to learning! And I definitely plan to join future local REI groups and connecting with people to help and learn from!

How to practice BRRR deals

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