How Much Rehab Is Needed Before You Rent a Property Using BRRRR?

Using the buy-rehab-rent-refinance-repeat (BRRRR) strategy is a great way to develop and build a strong passive income stream. You need to be sure you are doing it correctly when it comes to rehabbing your rental properties. After purchasing a great property, you still need to make sure that it is rent-ready and properly rehabbed before you attempt to rent it out to a tenant. After all, one great benefit of the BRRRR method is the ability to rehab your rental property in a way that best attracts the quality tenants that are going to rent and add value to your property over time and provide you the great cash flow you are looking for.

Of course, this rehab portion of BRRRR is often where many people end up having problems simply as a result of inexperience or lack of guidance. They are not entirely sure exactly how much rehab needs to go into the real estate before they are able to rent it out and before they can get that cash flow started. People using the BRRRR strategy often make the mistake of “over-rehabbing” a property – doing more than is necessary on the rehab to get the tenant and cash flow they desire – or, just the opposite, going cheap on the rehab, which costs you more money in the long run as further repairs are required and impacts the quality of the tenants you will get. Like Goldilocks, the goal is to get it just right. Below, we will be looking at the elements you will have to consider when it comes to rehabbing a property for your next BRRRR.

Before You Buy

When you are on your real estate investing journey, you need to first make sure that you understand exactly what it is you are buying and whether it will make financial sense for you or not. You are going to have a budget for the property you are buying, but you have to remember that the budget is not merely for the price of the property. It is also for the costs of the rehab and renovation of your rental property. Doing the math on your expected rehab costs at the outset is essential.

When you are searching for real estate to rehab, this needs to be firmly in your mind. If you overspend on the price of the property, you will have less money for the rehab costs if you want to achieve a certain financial result and stay within a budget that makes sense for the project you are taking on. You need to strike a balance, and it helps if you have a good idea of just how much the rehab of your BRRRR will cost ahead of time.

You can estimate this cost if you have an understanding of the types of work that will need to be done to the property, and your knowledge will build over time. Some trial and error is expected early on, but do not get discouraged by your mistakes. You can avoid miscalculations by taking the time to walk through the property, as well as around the outside of the property, to assess the obvious types of repairs and upgrades that will be needed to get it into rentable shape or have someone who you trust, be it your agent, contractor or property manager, who can do this due diligence for you or accompany you. Make notes of everything. As long as the overall structure and “bones” of the house, along with plumbing and electrical, are in good condition, costs can generally be manageable and are certainly more predictable.

If possible, early in your investing it would be a good idea to speak with contractors about the property and to get several estimates even before you buy or make an offer (if possible), and we always recommend building some contingencies into your offers in case rehab costs ultimately exceed estimates. This will ensure that you are not overextending your budget and that you can walk away if a project will be more to rehab than makes sense financially.

Different Properties Have Different Needs

One of the important things to realize is that each property is unique, even if they are in the same condo complex or subdivision. Just because one property only needed to have $3,000 in rehab costs doesn’t mean that is the case with the property next door. The condition of the property will play a huge factor in the basic costs. In addition, exactly what you are doing to the property to rehab it will factor into the costs. For example, if you have a property that is in a high-end neighborhood, you want to rehab the property so that it is equal to the other homes in the area.

Keeping the Rehab Costs Down

You will want to keep in mind that you do not need to overspend on the property during the rehab. Using your experience and those on your team (agents, contractors, property managers) can help you determine exactly what you need to do to a property to get it rent-ready. The work for a BRRRR rental property is often much less than you might do in the case of a flip, and the level of rehab should be tied to what features other rentals in your specific market are including, with perhaps some personal touch to make your rental property unique.

If possible, to help on costs, you can and should attempt to find many of the materials that you will need on your own. We even promote giving yourself the ability in your construction contracts, which we can assist with, the ability to purchase the materials for your rehab instead of your contractor. This can help to keep the rehab cost down, as you can find them for less than what a contractor might charge. In addition, you will want to consider what types of work you will be able to do on your own if you have those kinds of skills. Whether it is painting, putting down some new flooring, or changing out a sink, you might find that you have the skills and the time to do it on your own while of course weighing this against the costs of your time. This is another good way to lower the rehab costs and save on labor expenses.

Of course, for larger jobs, and when you simply don’t have the time, you will want to bring in a reliable contractor to get the job done correctly. Even though they might cost more, they can do the work faster and quality is important, which means you will be able to get the property on the rental market faster to increase your real estate cash flow. Holding costs are the bane of anyone in real estate who wants to sell or rent a property, so it is often worth it to make sure you have the rehabs done quickly and precisely even if the out-of-pockets rehab costs are a bit more.

The Most Important Parts of the Rehab

Ultimately, you need to make your rental properties fit with the rent range you want and the types of tenants that you want to attract and what their expectations will be. You will want to make sure that you have any permits that might be needed in order to do the work, and then get to work on your own or bring in the contractors. You might still be wondering which are the most important elements to include in a rehab.

Naturally, you need to make sure that everything is working properly in the property. This includes the electricity, the HVAC system, the windows and doors, and all of the plumbing. If there was any new plumbing or electrical wiring installed, building inspectors will check the building afterward to make sure it was done correctly. You should make sure that the home is freshly painted and that it is clean. The flooring should be clean, and if the old carpet or tile was in bad shape, you should replace it.

You do not have to spend a fortune on materials or rehab costs, but of course you want to make sure that the home is appealing. Adding new handles to the cabinets, new electrical switch plates, new doorknobs, new shower curtains, a simple backsplash, and other simple aesthetic touches can help to ensure that your rental properties will appeal to renters for relatively low costs. Using higher end features in areas requiring small amounts of features can also make a big difference – for example, a nice tile in a bathroom versus a simple laminate could be a good move since a small bathroom will not require an extensive amount of materials and labor costs will be the same regardless of what material you are laying down. A little “WOW” factor for a low price can help get your property rented quickly. Many of those small touches are things that you can do on your own and that will impact the overall appeal of your rental property and bring in a better pool of tenants.

The Danger of Spending Too Much Money on Your Rehab

One of the problems that many who are new to the BRRRR method face is trying to put too much money and time into the rehab. They want to make sure that everything is perfect, and they want to make as many upgrades as possible thinking that it will increase their chance of renting the property faster.

However, this can cause some problems. It means you could be pushing your budget to the limit and doing things that are not actually necessary to get those rental properties on the market. Proper carpet cleaning can often get a carpet back into great shape. You do not always need to add a new carpet or hardwood flooring. Appliances might still be in good shape. You do not always have to outfit the place with new ones. Choose upgrades and replacements that are good but remember that you do not have to choose the high-end options. The balance is always this – does it make sense to install a new item for $1000 that is not going to impact the appraisal value of the house to merely get another $25 per month in rent? The answer to that is likely obvious.

If the property is in good condition and if it looks good, you should not have trouble renting it as long as it is priced well for your market. You do not need to go overboard, as it will only cost you more money and mean that the property is off the market longer because the rehab is dragging on. You also run the risk of overpricing the market if you are trying to recoup amounts spent on rehab by increasing the rent to more than the market you are in can tolerate.

Think about the types of things that would be most important to the average renter and make sure that your property has them – most people do not expect granite countertops in a rental property except in the super high-end markets. Keep in mind that this is a rental property, not your dream house that you are building.

The Right Tool Helps Guide You Through Buying and Rehabbing Rental and Sale Properties

As you can see, there are many different factors that you will have to consider when you are choosing the rehabs for your rental properties or properties you want to fix and flip. However, BRRRR investing covers far more facets of the real estate investing process and the BRRRR method than just rehabs. We have developed a slew of quality tools that can make your BRRRR investing experience much easier.

Excited about BRRRR Investing? Don´t forget about your risk-free, free trial of our BRRRR solution for a limited time – analyze deals, make offers and contract securely with your property managers, contractors and tenants using our fill-in-the-blank contract templates prepared by professional attorneys and investors. Get access to our Deal Analysis and Legal Solution and do more BRRRR deals than ever before!  Learn more.  

Leave a comment

Your email address will not be published. Required fields are marked *

Follow Us on Social Media for our latest content, updates and offers!