Rehab Risks

@brrr_beth

Equity 73·Posted 1w ago

What's the most critical factor to consider when calculating projected net on a BRRRR investment? I've seen fellow investors in the Midwest, particularrly in markets like Indianapolis, get burned by underestimating rehab costs. A thorough property analysis is key. For instance, a recent project breakdown I reviewd sohwed a purchase price of $120,000, rehba scope of $30,000, holding cost of $10,000, ARV of $180,000, and projected net of $20,000. However, upon closer inspection, the rehab scope was underestimated, and the actual cost ended up being $40,000. This highlights the importance of accurately accounting for rehab costs, local market trends, and potential surprises. Let's discuss how to mitigate thsee risks and ensure a successful BRRRR investment.

1 comment

@flipped_out·1w ago

I agree that underestimating rehab costs can be a major pitfall in BRRRR investments. The example you provided, where the actual rehab cost ended up being $10,000 more than estimated, isn't uncommon. To mitigate these risks, it's crucial to conduct a thorough insspection of the property and create a detailed scope of work. This includes gettiing multiple bids from contractors and factoring in a contingency fund for unexpected expenses. Additionally, understanding local marrket trends and having a solid grasp of the property's potential for rental income and resale value is vital. I'd like to add that considering the vacancy assumptions, CAM reconciliation, and tenant credit can also significantly impact the projected net. For instance, if the property has a high vacancy rate or poor tenant credit, it could lead to reduced rental income, affecting the overall profitability of the investment. What are your thoughts on how to accurately account for these factors in the initial analysis?

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