How much cash do you need for a BRRRR?
BRRRR Start-up Cash
The BRRRR strategy has become increasingly popular among real estate investors seeking to maximize their returns. This strategy involves buying a distressed property, rehabbing it, renting it out, refinancing it, and repeating the process. However, one of the key questions that investors often ask is how much cash they need to get started with a BRRRR. In this article, we will explore this question in detail, looking at factors like lender requirements, rehab costs, holding costs, working capital, and more.
Lender Requirements:
Before you can start a BRRRR project, you will need to find a lender who is willing to finance your purchase and rehab costs. Different lenders have different requirements when it comes to down payments, credit scores, and other factors. Some lenders may require you to put down as much as 20% of the purchase price, while others may allow you to put down as little as 5%. It’s important to shop around and compare different lenders to find the one that has terms that work for you.
Rehab Costs:
Once you’ve secured financing, you’ll need to start working on the rehab. Depending on the condition of the property, this could involve anything from a simple cosmetic update to a complete gut renovation. The cost of the rehab will depend on the scope of the project, the cost of materials and labor in your area, and any unforeseen issues that arise during the process.
BRRRR Start-up Cash: To ensure that you have enough cash to complete the rehab, it’s a good idea to work with a contractor to develop a detailed budget and timeline. This will help you avoid cost overruns and delays that could eat into your working capital.
Holding Costs:
While you’re working on the rehab, you’ll also need to factor in the cost of holding the property. This includes expenses like property taxes, insurance, utilities, and maintenance. Depending on how long it takes you to complete the project and find a tenant, these holding costs could add up quickly.
To minimize your holding costs, you should aim to complete the project as quickly as possible and find a tenant as soon as possible. You may also want to consider working with a property management company to help you find and screen tenants, collect rent, and handle maintenance requests.
Working Capital: BRRRR Start-up Cash
In addition to the costs associated with the purchase, rehab, and holding of the property, you’ll also need to have some working capital on hand. This is money that you can use to cover unexpected expenses or emergencies that arise during the project. It’s also important to have some cash on hand in case you need to make additional repairs or upgrades to the property after the tenant moves in.
As a general rule of thumb, you should aim to have at least 10% of the project’s total cost in working capital. This will give you some cushion in case of unexpected expenses or delays.
Timeline:
Finally, it’s important to have a realistic timeline for your BRRRR project. This will help you plan your finances and ensure that you have enough cash to get the project done on time. Your timeline should take into account factors like the length of the rehab, the time it takes to find a tenant, and the time it takes to refinance the property.
Final Thoughts:
The amount of cash you need for a BRRRR project will depend on a variety of factors, including lender requirements, rehab costs, holding costs, working capital, and timeline. By carefully planning your project and working with experienced professionals, you can minimize your risk and maximize your returns. Remember to factor in all of the costs associated with the project and have a realistic timeline in place to ensure that you have enough cash to get the job done. With the right approach, a BRRRR project can be a lucrative investment opportunity for real estate investors of all levels.