BRRRR Investing Rules of Thumnb

[Steve Uhlig]

Good Morning Investors, 

I am interested in BRRRR investing and am in the process of looking for my first investment (1-4 units) in the western suburbs of Philadelphia. My question pertains to quick screening suspect properties to qualify or disqualify them efficiently for a closer look. Is there a quick screen rule of thumb that investors use to efficiently screen BRRRR opportunities or is it a matter of literally walking hundreds of properties to determine viability as a BRRRR investment? Is the 70% rule relevant as a quick screen tool for BRRRR investing or is that only to be used in fix and flips? I thank all the experienced BRRRR investors in advance for their wisdom on this topic.

Steve

[John Leavelle]

Howdy @Steve Uhlig

Here is the way I go about it:

1.  Locate distressed property.  

2.  Determine if property currently meets the 1% rule (Asking price vs Monthly Rent)

3.  Does the property meet my minimum Cash Flow criteria ($100 per unit) using the 50% rule.

4. Get comps to determine Fair Market Value (like new condition or ARV)

5.  Develop Rehab estimate 

6.  Use 70% rule to determine my All-in cost limit (Purchase price, Rehab cost, Closing and Holding costs)

7.  Determine my Maximum Allowable Offer 

ARV x 70% - Rehab Costs - Closing Costs - Holding Costs = MAO

I also check how the property will Cash Flow after the Rehab and Refinance.  Most properties I buy are under Market rent rates so the new mortgage payment usually does not wipe out the Cash Flow.  If I cannot meet my minimum criteria I may adjust the Cash-out amount to reach the minimum.  If too much of an adjustment is required I may have to pass on the deal.