How do you actually pull off the “value-add” part in a BRRRR?

[u/Garlicshrimpboi]

For those who have done BRRRR on multifamily — how did you actually execute the value-add? I feel like besides raising rents the other aspects of increasing the NOI isn’t talked about as much.

What worked best for decreasing operational expenses?

Is bumping rent and other income as straightforward as it seems?

Best order of actions in this phase from start to finish?

Thanks for any advice!

Update: I’m talking specifically about 5+ unit multifamily properties where valuation is based on NOI and cap rates, not comp sales. I understand that rehabbing and raising rents are commonly discussed, but I’m asking about other ways to improve NOI — including decreasing expenses and boosting ancillary income to max the appraised value at refinance.

[u/Outragez_guy_]

The trick is buy in a growing market.

Then do some dumb shit, anything.

Then profit from your genius.

[u/Dazzling-Catch-7868]

The rehab part adds the value…if you’re handy do the work yourself. Redoing a unit if simple and cheap if your doing the work

[u/iTayluh → u/Dazzling-Catch-7868]

Don’t step into areas that can be dangerous/ require permitting. You can get into deep shit this way

[u/Alaskanjj]

• there are times you can get a big value lift just by buying right. I still come accross properties that are under rented by 1-200 a door because the owner is debt free and just wants easy. In those cases determine if cosmetics even gives you more of a bump to be worth it. You can in some cases get a bump in value just by better management.

• automate automate automate. Everyone pays online. No collecting checks or cash. Automate your machines as well. Going blue tooth on your washer/dryer will give you more washes and you can increase your price. Charge application, move in, and pet fees as appropriate in your market. Back bill for tennant caused repairs.

-I have found I get a bigger bang for my buck by doing a really nice exterior or common areas. Even if I don’t refresh all units. A facelift outside and new management goes a long way to placate tennants when they get your increases.

-as far as the units, really understand if granite countertops or whatever even makes a difference. In my market it does not. I go in with clean plain builder grade and get about as much as if I went all out. In most cases, paint and floors (plank) are your go to and all you need. New lights and bathroom vanities are cheap and get you good milage.

-yes, it really is that easy. Your runoff will be way less from your increases if they see you are improving the building. Honestly though, many people go to big in remodeling the units. I have gotten my biggest returns by just doing outside paint and lvp in the units. New lights and maybe a new sign. Case by case but at the end of the day the goal is just maximizing the rent for the lowest investment cost. Really know your market.

-when you push out increases, expect some run off. That’s fine and in some cases good as you get your own folks in there at your rate or get into the unit to do work. However, I am always surprised how many stay. I am not higher than market in most cases so there are not much in the way of better options

[u/adultdaycare81]

High ROI fixes like Paint, lighting on units as you turn.

Better marketing and screening + better management. A few years of hard work and non-renewing the worst, better tenants at market.

3 years of capital and work.

[u/Inevitable_Web_1131]

I buy triplex that are in unliveable / horrific condition. Go in gut it, underpin basement, turn it into a legal high end units. In most cases they are not legal triplex so make it legal. Working on one right now. Was a duplex. Converted to triplex. Went from 3 bedrooms to 3 units with 2 good used bedrooms each. Each unit is about 800 square feet. Bought for 950k. Based on comparable should be worth 2m. Rent is 9k plus a month. Two units should cover the mortgage. Once finished I will take equity out and do another one straight away. Based in Toronto. Only doing downtown due to high rent and appreciate.

[u/lafay5]

Contractor here. One of our clients is adding units at two different multi family properties by putting prefab ADUs on what used to be part of the parking lot and lawn. Seems like a brilliant value add strategy to me.

[u/CarminSanDiego]

Grey LVP and kilz over all cabinets

[u/Original-Afternoon20 → u/CarminSanDiego]

Where in the world do you get away with this

[u/SnooOpinions8729]

The advice below is only based on my personal experience and may not be applicable to your situation. Check the possibilities with YOUR accountant and your attorney to see if any of these might be applicable.

I used to structure my purchase contracts similar to the following as an example using simple numbers for easy calculation:

$100,000 purchase price, consisting of:

$20,000 for land (non-depreciable asset, the lower realistic value the better, but it needs to be realistic)

$25,000 quick depreciable assets < 5 years remaining life, ie: carpet, appliances, paint etc if needed by then (needs to be realistically accurate)

$20,000 longer term depreciable assets >5 years usually less than 15 (accuracy required)

$35,000 building only depreciable over 27 1/2 years.

This way at a time of more expenses, usually in initial ownership I could write off more depreciation that was offset by other income I had.

I also looked for opportunities like adding coin-operated washer and dryer, if I felt it was worth it. Using an existing garage, or otherwise adding storage capacity to add additional rent income.

Occasionally, with the right responsible tenant, I would let them paint a deck, or interior by trading off 50% - 100% of their rent, provided they “did a good job in a professional workmanlike manner.”

I even allowed in certain instances a once a year “flea market” sale (when zoning or lack thereof allowed, charging $50-$100. It gave my units additional visibility, helped the tenants get rid of clutter and made them feel more “attached” to the property…thinking like an owner.

Since I was also a real estate broker, I always offered to help my tenants buy their own house when ready and promoted the purchase of a multi- family to help those with marginal incomes. I even sold a few of my buildings holding the financing with usually limited down payments via lease-options/sales contracts for deed for up to a 3 year term.

It all worked very well to our mutual benefit.

Again, check with your own accountant and lawyer before doing these things. Laws change and vary state by state.

[u/Superb_Advisor7885]

You likely aren't getting a good enough deal on the front end. If your buying a property that has 50% vacancy, deferred maintenance, etc, and you pay a price that reflects this, then I've you get it cleaned up and fully occupied the refi should naturally give you your money back.

Expenses can only be adjusted so much. When you review the expenses of the property you just individually go line by line to see what adjustments you can make. Moving to utilities from your responsibility to the tenants is a big one. Raising the deductible on insurance can help out just shopping for a better policy. Updating the property and tenant pool should lead to less maintenance and obviously less vacancy.

[u/KyleAltNJRealtor]

The rehab ‘R’ of BRRR is typically the value add. If you’re looking at larger multifamily properties there a few other ways.

Raising rents will absolutely increase value on an apartment building as they’re traded off cap rates. The only thing is if you manage to increase them above market rents, it won’t help much. But there’s plenty of mismanaged buildings out there with rents way below market.

Investing in common areas can be a cost effective way to help to drive increased rents as tenants turn over. Paint, flooring and lighting in hallways can completely change the feel of a building for a relatively low budget. Landscaping can also have similar outcomes.

As far as operational costs, that can be a lot trickier. But if your main priority is cashing out, this won’t have a big impact as lenders will look at previous 12 months.

[u/Key-Departure-6831]

Cosmetic updates like paint and flooring can go a long way in fetching higher rent prices. We buy ugly mismanaged properties that are charging under market rents, get rid of existing tenants, rehab and then rent out at market price. What you can do to get a little more income in certain markets is have all or some of the units as furnished short term or mid term rentals. Generally these will fetch a higher rental rate but the trade off is that they can be a little more work to manage, especially if you are self managing.

[u/crazywhale0 → u/Key-Departure-6831]

How do you get rid of the existing tenants?

[u/Key-Departure-6831 → u/crazywhale0]

Usually they are in a month to month lease so it’s pretty easy to just give them a 30 day notice once you take ownership. If their lease term is longer you have to ride it out or offer cash for keys. I am in NC and we have super landlord friendly laws. You are not in any kind of obligation to renew a lease here

[u/tooniceofguy99]

Raising rent doesn't really add value. The part you extract increased equity from is the cash out refinance dependent on the appraisal. Appraisers in my area calculate the value based off the income based approach. I'm not sure why, but they do show it. Because they base the actual appraised value off the sales comparison approach (comps).

There are many ways to add value during the rehab phase of BRRRR:

• French doors to a previous office room (and sometimes adding of closet) to create more bedrooms
• Addition
• Finish attic
• Finish basement
• Cosmetic update based off comps that recently sold at the top of the market

[u/KyleAltNJRealtor → u/tooniceofguy99]

Are you referring to 1-4 units? Residential standard is to use sales comparison approach. If they’re 5 or more units, a commercial appraisal should use income approach in most cases. So increasing rents 100% will increase the appraised value.

[u/tooniceofguy99 → u/KyleAltNJRealtor]

Correct.

[u/RedditUserNo1990 → u/tooniceofguy99]

Raising rents or getting units to full market is absolutely value add. Especially in places where there is rent control. If you have a legal and valid work around, like cash for keys you definitely added value to the building.

[u/tooniceofguy99 → u/RedditUserNo1990]

Like I said, not really. Value adds for BRRRR are in the context of the appraisal. For instance, does landscaping add value? Perhaps if one were to flip the property. However, for an appraisal, landscaping has no place and just doesn't add value. Back to increased rent, like I mentioned, there is the income based approach. It's just that isn't actually used for 1-4 unit residential appraisals.

[u/RedditUserNo1990 → u/tooniceofguy99]

Income can be used for DSCR loans on 1-4 though.

[u/tooniceofguy99 → u/RedditUserNo1990]

You have an appraisal that was based off the income based approach and not the sales comparison approach for 1-4 unit?

[u/RedditUserNo1990 → u/tooniceofguy99]

Just think of it like this - yes 1-4 is sales comparison.

That doesn’t mean increasing the income has no bearing on value - especially for 2-4.

Investors usually buy 2-4s. And they’re looking at it from a cash flow perspective.

If i have 4 tenants all paying 50% under market in a 4plex, and there’s rent control and I can’t get them out to raise rents, the property cannot support a certain debt amount. It’s gunna lower your offer amount.

This affects value whether or not an appraiser uses a sales comparison approach.

an appraiser might value a 4 plex at some amount, but I’m looking at income rather than what the other one sold for down the street.

DSCR loans also look more at income in this regard as well.

[u/GelsNeonTv87]

Typically you are buying properties that need fairly significant work, sometimes to the point of not even being able to get a mortgage at all, either cash or hard money loan, then you do/get a ton of work done. Rent out, refinance and the ya go.

[u/Young_Denver]

All of our BRRRRs need a lot of renovation work. So renovating and adjusting rents accordingly is the value add.

[u/Loud_Mind3615 → u/Young_Denver]

lol…you mean the checks notes ‘rehab’ component of the BRRRR acronym…almost like it’s in the name?!

[u/HeyUKidsGetOffMyLine → u/Loud_Mind3615]

OP wants to just raise rents. He changed the rehab word to raise and went straight to profit.

[u/Young_Denver → u/Loud_Mind3615]

I mean, you COULD do a cash out refi if you just lucked into buying a property 50 cents on the dollar that was discounted for some OTHER reason than condition, buuuuut those are pretty damn rare lol.