Hallmarks of a Good BRRRR Deal

Many people are considering using the Buy-Rehab-Rent-Refinance-Repeat (BRRRR) strategy as a way to branch out with their real estate investing. They may have heard about some of the benefits that the “Buy, Rehab, Rent, Refinance, Repeat” strategy is capable of offering and they want to try it out for themselves. For those who do, they will need to actively learn more about the strategy and how it works best, and how to find the right properties and the best deals.

There will be quite a few things that you are going to need to consider when you are looking for one of these properties. The following are some of the features that you will want to look for when you are trying to find a BRRRR deal.

The Price Is Right

One of the most important things to look for when you are seeking a BRRRR deal will naturally be the price. You want to make sure that you are choosing a price that will make the property a good investment for you. Usually, you will be looking for a property that is below market value, as you will be looking for something that needs rehab. However, you will need to make sure that it is a reasonable price based on the condition of the property.

To get a better sense of how much you should be paying for the property, you will need to look not only at the condition of the property but also all of the other features that it offers. This includes the size, number, and types of rooms, and any extras that the property might offer. Such facts will need a comparison against other properties in the area that are in similar condition. If you were to compare a property in need of rehab to a property that is ready to move in, it would always look like you are getting a good deal on the rehab. As you can imagine, this can be very misleading. You have to consider the cost of the property and factor in all of the other expenses associated with it, as noted below.

Ultimately, with any property you plan to BRRRR, the objective is to be all in on the project from a cost perspective for 70-75% of the after rehab value, meaning what the property would likely appraise for after you have done all of your renovations. Why is this important? The goal with a BRRRR is to recycle the same investment cash over and over for more and more projects. Most lenders at the time of refinance are not going to lend more than 70-75% of the appraised value of the property. So, to get all the money you invested back to reuse for another project, you are going to want to limit your combined cost for purchase, rehab and closing costs to that 70-75% range so that after refinance you have a full return of your capital and can redeploy it into another project. Our Deal Analyzer tool can help you hit your numbers accurately and confidently.

The Rehab Is Feasible and Affordable

To ensure you are getting a good deal on the BRRRR property you are considering, you will need to take time to examine the property to get a better understanding of what the rehab process requires. The price of the property is just one of the costs. How much work will need to be done on the building before it can be rented out?

You want to look at the property to see what type of repairs need to be made. Does it need a new roof? Does it need new wiring? Is the plumbing intact? While you might be able to estimate the work that needs to be done on your own, you will find that getting in touch with a contractor that you can trust is a better idea. They will be able to look through the property and give you a full understanding as to the type of work and the extent of the work that will need to be done before the unit can be rented out to someone until you are more experienced and can roughly estimate rehab costs at least well enough to confidently make offers on properties. Check out our Interviews tool to find a reliable contractor for your projects.

In some cases, the rehabbing might be mostly cosmetic. Other times, you might find that there is structural damage that would end up putting the cost of the property far beyond what your budget can entail right now, making it a bad investment.

In addition to the cost of the rehab, you will also need to make sure that the rehab process itself does not take too long. If you buy a property and it can’t be inhabited for six months, you will have to have money to cover all holdings costs like taxes, utilities and maintenance during that time. You also have to consider just how long it might take to get tenants into the property – always understand your market and its desirability before jumping in, and talk to agents and property managers in that market if it is out of town or new to you. We recommend using our Interviews tool to ask the right questions of potential real estate agents and property managers.

The Property Can Provide You with the Cash Flow You Need

Once you have the property rehabbed, you are going to need to rent it out to start recouping your money. You will find that this can be rather difficult to do if you have chosen to buy a property in an area that has few people who are willing to rent there, or if you are only able to charge a low amount of rent. Even when you get an excellent price for the property, if you are not able to generate enough revenue through rent, it may not be a good investment for you if you are focused on current cash flow.

Therefore, even when you see what otherwise might seem like a good deal, you need to do your due diligence when it comes to understanding the location. You have to learn whether it is an up and coming location, whether it is holding steady, or whether it is in decline. You need to look at other properties in the area that are similar to the one you are considering to see if they have a lot of vacancies and how much they can charge for rent.

You will need to calculate how much you could conceivably make in rent after the rehab to get a better idea of whether it will be a good buy for you or not. It tends to be helpful if you calculate your rents as being slightly lower than what you would like to charge. This will give you a bit more safety room. We always suggest being conservative in your calculations – better to have unexpected wins than unanticipated losses! Check out our Deal Analyzer tool to help you confirm your rental calcs.

Many are concerned that buying in what some might call premium areas would be too expensive. In some cases, that is correct. Instead of focusing on the most costly and most beautiful areas, the best way to get a good BRRRR deal is to buy a property that is adjacent to those premium locations. There are still a lot of people who are willing to rent and live in those locations, as they are generally still considered good areas with a lot to offer. They just won’t be quite as expensive when you are buying the properties that need rehabs before being rented. These can make great choices.

Of course, if you can find a property in a prime area that is affordable and that does not need too much rehab, it will also be worth your time to investigate it further. Our goal is always to find the worst house in need of rehab in the best neighborhood!

You Will Get Better at Finding the Right Properties

When you are first getting started in this field, it can be intimidating to try to find a property that will be a good option for the BRRRR strategy. You will likely begin to second-guess yourself, and you will need to refer to the above to make sure that you have a solid deal in place. Fortunately, when you keep the above in mind – a good price, affordable and doable rehab, a good location, and positive cash flow – it becomes easier to know what will constitute the best BRRRR deals. Establishing your criteria and what you are looking for will be crucial. As you will see below, you might want to have a little bit of help along the way.

Make Your Investing Life Easier

There is a substantial amount to think about when you are looking for BRRRR deals that are worth your time and money. With our subscription-based web service, it will be easier for investors to determine what deals are best for them. The service allows investors to analyze deals, automatically generate offer letters, edit and sign contracts that are prepared by professional attorneys, interview real estate agents, contractors, property managers, and lenders, and more. Those who have been seeking a more straightforward method of getting started or continuing in this field will want to check out the subscription service.

It Might Take Some Time

When you are investing using the BRRRR strategy remember that it might take some time for you to find that first deal that meets your requirements. Do not rush into a bad deal just to get started as an investor. You want to take your time and look over the deals from top to bottom, and you will likely want to have a second set of eyes look at the deal, as well. Don’t let the emotion of getting started cause you to make a bad decision – there will always be more houses for sale.

Keep the above in mind and only buy when you are sure it is going to be a good deal for you!

Excited about BRRRR Investing? Sign-up for our All-in-One Solution for the BRRRR investor to make sure you are analyzing deals accurately and engaging your contractors, property managers and tenants on terms that are favorable to you with our attorney-prepared, buyer-friendly contracting solution.  

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