Step 3-Analyzing Potential Properties Utilizing BRRRR Method Math
Analyzing Potential Properties Using the BRRRR Method Math
Creating Wealth = The 70% Rule 70% Rule Formula - MPP = (70% x ARV)- Repairs
You may have several sources for potential properties. Later, we will guide you through the various methods of acquiring value-add projects. For now, let’s assume you have a property to evaluate today or use the practice exercise at the bottom of this page.
Next-BRRRR Method-Formula Analyzing Property Steps Step 1 - Virtual Inspection. Imagine you’ve just received an email from a local wholesaler or Realtor. (Wholesalers are individuals or companies that build a list of potential investors and offer them properties via email or text.) These emails typically include the property address, photos, and sometimes rough estimates of the construction budget and resale value. Later, we’ll show you how to work effectively with wholesalers. For now, your first task is to estimate the Maximum Purchase Price (MPP) for the property and compare it to the asking price to avoid wasting valuable time. To do this, you’ll need to focus on two key components: the construction budget and the resale value. As the CEO of your business and principal investor, it’s critical to quickly identify which properties are worth pursuing and which are not. Photos can often help you evaluate the level of renovation needed: High (a complete tear-out renovation), Medium (typically involving up to three items such as the kitchen, bathrooms, roof, windows, or HVAC system), or Light (cosmetic updates like painting, flooring, minor repairs, and one item from the Medium list). Your general contractor (GC) can provide a rough cost estimate for each renovation level based on the scope of the project, which you can track on a spreadsheet. You can also share the photos with your GC to get their professional opinion. After estimating the construction budget, you can determine the Maximum Purchase Price (MPP) using the 70% rule. If the MPP falls within a reasonable range, you can move on to the next step. Step 2. Onsite Inspections are a crucial step to master. A General Contractor (GC) will create a construction budget for your project after completing an onsite inspection. To ensure nothing is overlooked, have a master construction budget spreadsheet prepared in advance. Bring a powerful flashlight, as the site may often lack power. Once the budget is finalized, you can then fine-tune the Maximum Purchase Price (MPP).
Step 3-Estimate the construction budget. Most general contractors (GCs) can provide an accurate construction budget estimate within 24 hours of completing their walkthrough. Keep in mind that this step is often time-sensitive. The property is likely being offered to other investors as well, so you may need to act quickly to avoid losing the opportunity. 4.How to use comparable sales: To determine property value, you need access to an accurate database of comparable sales. A quick Google search might provide estimates from "AVM" sites (AVM stands for Automated Valuation Model, a computer program that uses real estate data to estimate property values. Popular AVM sites include Zillow, Trulia, and Realtor.com). However, these tools are still in development and often lack accuracy. A better option is to obtain access to a Realtor’s MLS database. Building a relationship with a local Realtor is recommended, as they can provide you with a desktop Comparative Market Analysis (CMA) for the property. This analysis is typically more reliable, and the relationship with a Realtor can be valuable. Be aware that you may need to compensate them for their time and expertise. Step 5. Target MPP and negoiate purchase: Based on the data you’ve gathered, consider offering the seller or wholesaler a price that aligns with the BRRRR Method math formula. It’s recommended to offer slightly less to create a buffer for potential cost overruns. Once an agreement is reached, you’ll need to provide either a purchase offer or an assignment agreement (Click here to learn more). Using the BRRRR method, what do you believe the Maximum Purchase Price (MPP) is for this home? Click here for the exercise.
Next-BRRRR Method-Formula Analyzing Property Steps Step 1 - Virtual Inspection. Imagine you’ve just received an email from a local wholesaler or Realtor. (Wholesalers are individuals or companies that build a list of potential investors and offer them properties via email or text.) These emails typically include the property address, photos, and sometimes rough estimates of the construction budget and resale value. Later, we’ll show you how to work effectively with wholesalers. For now, your first task is to estimate the Maximum Purchase Price (MPP) for the property and compare it to the asking price to avoid wasting valuable time. To do this, you’ll need to focus on two key components: the construction budget and the resale value. As the CEO of your business and principal investor, it’s critical to quickly identify which properties are worth pursuing and which are not. Photos can often help you evaluate the level of renovation needed: High (a complete tear-out renovation), Medium (typically involving up to three items such as the kitchen, bathrooms, roof, windows, or HVAC system), or Light (cosmetic updates like painting, flooring, minor repairs, and one item from the Medium list). Your general contractor (GC) can provide a rough cost estimate for each renovation level based on the scope of the project, which you can track on a spreadsheet. You can also share the photos with your GC to get their professional opinion. After estimating the construction budget, you can determine the Maximum Purchase Price (MPP) using the 70% rule. If the MPP falls within a reasonable range, you can move on to the next step. Step 2. Onsite Inspections are a crucial step to master. A General Contractor (GC) will create a construction budget for your project after completing an onsite inspection. To ensure nothing is overlooked, have a master construction budget spreadsheet prepared in advance. Bring a powerful flashlight, as the site may often lack power. Once the budget is finalized, you can then fine-tune the Maximum Purchase Price (MPP).
Step 3-Estimate the construction budget. Most general contractors (GCs) can provide an accurate construction budget estimate within 24 hours of completing their walkthrough. Keep in mind that this step is often time-sensitive. The property is likely being offered to other investors as well, so you may need to act quickly to avoid losing the opportunity. 4.How to use comparable sales: To determine property value, you need access to an accurate database of comparable sales. A quick Google search might provide estimates from "AVM" sites (AVM stands for Automated Valuation Model, a computer program that uses real estate data to estimate property values. Popular AVM sites include Zillow, Trulia, and Realtor.com). However, these tools are still in development and often lack accuracy. A better option is to obtain access to a Realtor’s MLS database. Building a relationship with a local Realtor is recommended, as they can provide you with a desktop Comparative Market Analysis (CMA) for the property. This analysis is typically more reliable, and the relationship with a Realtor can be valuable. Be aware that you may need to compensate them for their time and expertise. Step 5. Target MPP and negoiate purchase: Based on the data you’ve gathered, consider offering the seller or wholesaler a price that aligns with the BRRRR Method math formula. It’s recommended to offer slightly less to create a buffer for potential cost overruns. Once an agreement is reached, you’ll need to provide either a purchase offer or an assignment agreement (Click here to learn more). Using the BRRRR method, what do you believe the Maximum Purchase Price (MPP) is for this home? Click here for the exercise.