BiggerPockets Real Estate Podcast - The Simple Formula to Estimate Renovation Costs (2025 Numbers)

Episode Date: June 18, 2025

Your agent just sent you a killer real estate deal with enormous upside, but it needs a bit of work. Here’s exactly how to estimate renovation costs, so you know you’re buying a property with a juicy margin instead of one that will just break even. Whether you’re renovating a rental property, planning to refinance after the rehab with the BRRRR method, or flipping a house for some quick cash, we’ll give you the formula to run your renovation numbers FAST.  We’re back with real estate investor questions from the BiggerPockets Forums. First up: how to estimate rehab costs on a distressed property. And, if the renovation costs are high, is the rehab still worth it? Then, once you’ve got your rental portfolio, when should you hire property management? Your agent wants you to sign an exclusivity agreement so you only work with them; here’s when we will (and definitely won’t) do it. Finally, we share a way to access home equity WITHOUT refinancing at a higher rate and killing your cash flow. Got a question? Need answers? Share your real estate investing situation on the BiggerPockets Forums.  In This Episode We Cover How to estimate rehab costs and the price-per-square-foot guidelines to follow Accessing home equity without refinancing (a way better option in 2025) How much money should you make on a flip? Why even $40,000 may be too low When to hire a property manager and signs that one will actually take care of your tenants/property  Whether or not to sign an exclusivity agreement with your real estate agent  And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1136 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

I know I can get rich if I just pull off this home renovation, but I just don't know how much it's going to cost. And that's a question you've been asking yourself. Today, we haven't answered for you. What's up, everyone? It's Dave here on the Bigger Pockets podcast. And today we're diving back into the Bigger Pockets forums to answer a whole bunch of questions that you all are asking about your own real estate investing.

Henry Washington is here with me. So we have about 25 years of combined investing experience on this episode. We've got great questions about how to project renovation costs if you've never done one before. When it's time to hire a property manager, whether it's ever okay to create negative cash flow with a refinance and much more. Henry, how are you, man? I'm doing well, sir. How about you? Good.

It's been a while since we've done one of these. But these are some good questions. Are you ready to jump in? Yeah, man. I love these episodes. Let's do it. Same. All right. So our first question comes from Chris, who's an investor in the Upper Peninsula of Michigan. His question says, I'm looking to get into the bur game and trying to estimate how much renovations will cost for an average distressed, two to three bedroom home, 1,200 square feet or less. I keep hearing that cost of labor and supplies are rising, so I'm wondering if 50 grand is reasonable to get a smaller single family home looking like something you'd see on HGTV. I don't plan on doing any of the work myself.

I'd rather stay out of the way and let professionals do their thing. We'll touch that HGT thing in just a minute, but let's start with the main question here. About just estimating renovation costs, is this even possible? Like, can you ballpark something as broad as a distressed two to three bedroom home, 1,200 square feet? Well, as you asked the question, the answer is yes. Can you ballpark something like renovation costs? Absolutely. Now, if you'd have said, can you ballpark them accurately? Then we'd have to have to be a little more specific. But in all seriousness, there are several ways that you can ballpark a renovation when you don't have any experience.

I had zero construction experience when I got started. And I still don't know how to do anything, but I at least understand the order of operations now and what looks like it makes sense and what doesn't. And the answer to the question is 50 grand reasonable for a smaller single family home? Yeah, it is. I think that's a reasonable budget. I don't know, you know, what you define as like HGTV style finishes. But one of the things you can just do is just take an average cost per square foot, right? So if you take somewhere between 10 to 20 to $25 a square foot and call that in a cosmetic light renovation, take somewhere between 20 and, 35, $40 a square foot and call that kind of like your mid-level renovation. So maybe you're not doing

down to the studs, but maybe you're moving a wall or two and completely remodeling a kitchen and a bathroom or something like that. That's a little more than just painting floors. Call that your mid-tier and then take something upwards of 35 to 55, 60, maybe even 75, depending on how much of a remodel you're trying to do. Is it luxury finishes? Is it not right? And you can call that your high-end, you're maybe you're going from down to the studs. Maybe you're moving a kitchen from one side of the house to the other. Those things tend to get a lot more expensive than just remodeling things in place.

But you can just take those numbers, multiply them by the square footage of the house. And that should give you a rough estimate of labor and materials cost. Now, is that something that you want to use to make your final offer on the project and base all of your numbers on? No. I don't think that's what you should be doing with these general assets. Estimates. These general estimates are just meant for you as you're analyzing a deal to see if the numbers are even in the realm of possibility for you. And then if they are, then once you make an offer, you can go see the house and get a whole lot more specific on that rehab budget and then adjust your offer if you need to. But just for the sake of analyzing a deal like this, yeah, just take a cost per square foot, low, medium and high and see if you're in that ballpark. So in this sense, you know, we can try it with this. Just before we go into, that's just a remarkably helpful framework. I just want to say.

And I'm sure if you're in New York or San Francisco, it's probably going to be a little bit different. But for markets like Henry's, and I'm sure most markets, mid-tier markets in the U.S., this makes sense. So what did you say? Mid-tier was 30 to 40 bucks a foot. Yeah. Yeah. So if we did 35 a square foot times 200, what's that? 42,000.

Yeah. 42,000. So, yeah, he's probably pretty close. All right. You're going to be on love it or listed or flip or flop or whatever show. HGTV is after this. Yeah, I think that's really good. I think the one main thing here, though,

that you're probably assuming that I want to call out is that you're buying a house without any structural issues, right? This is a house that's probably mostly in decent shape. You don't have foundation issues. You probably don't have a roof caving in. You don't need to completely rebuild part of the house or something like that. You know, the bones are decent enough that you're going to be

able to do a lot of your work without huge amounts of permitting, without any sort of like specialty trades or anything like that. But that seems pretty good. And I mean, I don't know what you're buying these things for in the Upper Peninsula. But to me, if you can burst off for under 50 grand and that property is in demand in your area, that's probably a good place to start. And you're probably going to find some decent deals there, I would imagine. Yeah, especially in that Upper Peninsula area. I think there's probably some decent deals. And spending 50 50K on a renovation, you probably put yourself in a pretty decent position with those low entry price points and pretty decent size rents there.

All right, you nailed that one. You just taught people how to be an HGTV flipper in under six minutes, Henry. Congratulations. Take that taric. Yeah, seriously. Going on to question two, this comes from John in Nashville. John asks, to all self-managing landlords that switch to using a property management company what caused you to make the switch?

Was there a situation that deterred you from self-managing, were you just looking to gain back your time, or did you feel like using a property management company could help you better achieve your goals? You're laughing. What are you thinking about? I'm thinking about the story my now property manager told me when I was deciding whether or not I wanted to use him.

For a reference for people, I probably had about 80-ish doors at the time that I turned my portfolio over to property management. You were doing that by yourself, 80? Yeah, yeah. My wife is handling most of the day to day. My wife would handle everything up until she actually had to talk to a tenant because of some sort of dispute. Then it was my job. And, you know, I've always been a proponent of no one will take care of your properties as good as you will. And so, yes, it might be an inconvenience to you, but you'll care more than somebody else. And I wouldn't call myself a normal landlord. I put a whole lot more emphasis on people, meaning like I truly care about the tenants and I truly care to have a safe, comfortable place to live. And sometimes I'm willing to take a hit in the wallet to do what's right that I feel like what's right for my tenants. And not every landlord will do that. And property management companies definitely don't make money on a business model like that. And so I was hesitant to turn over my portfolio to someone who might not care as much as I do. And a couple of things that stood out when I

chose to work with this property management company. First of all, they don't refer to their tenants as tenants. They call them residents. Those things matter. I know it kind of sounds like woo-woo, like these little things about what you call things and how do you refer to people. But it does matter. And especially when you hire people, that stuff persists through your organization. I mean, there is a right, wrong, or indifferent. I don't care how you feel. There is a stigma, you know, with the term tenant. You know, sometimes people see that as somebody who, you know, know, maybe they can't afford to buy a house or, right? Like, there's this, there's the stigma that doesn't make any sense, but it's there. Right. And so the fact that they're calling them residents,

and that helps the resident feel like they're more a part of this system, lets them know that, like, hey, we care about you. We want you to have a good experience, right? And that, those little things make a difference in how a tenant or a resident will take care of your property, pay their rent on time, like all those things matter. The second thing that stuck out to me, me when I was analyzing it. I told him, he was like, man, I just don't think anyone's going to care about my properties as much as I do. And he said, you're absolutely right. We don't care about your properties as much as you do. But we are way more efficient at this process than you are. And caring is only one piece of the puzzle. Efficiency is arguably more important. He was like,

how long does it take you to turn a unit? And I was like, I don't know. It depends on the unit. He was like, I can tell you exactly how long it takes me to turn a unit. It takes me 10 to 15 days to turn a unit depending on where it is. Also, you have good contractor relationships. We have the same contractor relationships that you do. So it's not like you're going to lose money having us do a turn. So I'd argue that you're already paying for a property manager in the amount of money you're losing per month in inefficiencies.

You're just paying a bad one. It's so true. And I was like, you're right. Yeah. Right? Like the efficiencies I pick up is going to make me more money. And that more money that I'm making is basically the salary I was throwing out the window for me being my own bad property manager. Totally.

Yeah. And the efficiency thing really matters because like I've at least noticed in my own investing since I switched to a property manager. And I'll explain why in just a minute. But like you do save some money on that. Right. So just say you had a $2,000 unit. you're turning that thing, you have two weeks less vacancy, it's $1,000. That's $1,000.

And you could choose then to reinvest into the property. You could pocket that money. You could set it aside as a cash reserve. So if the tenant needs something, like, you can use that money to care about your property. Right? Like, instead of using your attention to care about the property, you can use money to care about your property. And money is very efficient for care about property.

Money is great for caring about properties. Yeah. And listen, there are pros and cons. And I do recommend people start self-manage. I agree. I am very glad I did that. I did it for 10 years. I will now tell you that I just like real estate better now that I don't.

I also agree with that statement. It's more fun for me because now I get to do the stuff I'm good at and the stuff I like and not be stressed out about the stuff that was bothering me. And I started when I was 23. So I had nothing to do. I could just go. It was very easy for me to just go take care of stuff all the time. We were cashing checks.

We were picking up in person those days. Bro. That was fine. But like now I don't want to do it. And I just find it to be much more sustainable. John asked why did you do it? The reason I made the change is because I moved out of Denver. So I had to do it.

I was moving to Europe. And that's been great because, yeah, I now paid 10% of my revenue to a property manager to take care of it. And this property manager is good. He's not, he's not, like they're not the best, to be honest, but it's good enough. They take care of the tenants, the tenants like them, which is what I care about. And they're communicative enough. They do a good enough job and allows me to focus on acquiring new properties or renovating properties or doing all the other stuff I do in real estate. And so to me, that is, that is, that is, well worth it. But I'm super glad that I self-managed first because I can sort of critique them and coach them and manage them because I know what it's like to manage properties for a long time.

Yeah, absolutely. I'm glad I did it first as well. Like just the knowledge you'll gain from doing this process. A, will help you understand what they're doing and if it's necessary. And B will help you be able to call the BS when the BS flag needs to be, you know, thrown. because you've been through the process and understand how it goes. Before we move on, I want to mention one thing because I think a lot of people say, if you hire a property manager, you are going to make less money. And all things being equal, maybe. But I would only say that that is true if you're a good property,

yes, if you're good at it. Because if you suck at it, like, you're going to just not make as much money. I'm sorry. And there are points where I've been bad at it, not because I don't know how to do it, because other parts of your life come up. And you wind up saying, you know, I could efficiently turn this property, but I have something going on in my personal life or my social life or I'm going on vacation. And now it's going to take me six weeks to turn this unit instead of two weeks to turn this unit. And yeah, if I cared the most, but I just lost $2,000 because other things came up in my life and I'm just kind of, acting too proud to hire someone to do it. So there's no right answer. I think both can work,

but just think about it for yourself. Are you actually making more money doing this yourself, or would hiring a professional do better? I think the most important thing that we should mention is that regardless of how you feel about this debate on whether you need property managers or whether you're going to self-manage, you need to underwrite your deals as if you are going to have professional property management when you're making your offers. because you could be like me and think, I'm never going to hire property management because that is 100% how I felt. But things changed, right? Like, things changed in my opinion changed. And because I underwrote my deals conservatively and included that expense, even though I wasn't paying that expense,

then when I go to hire somebody, I'm not losing money, right? It's not cutting into my profits because I never budgeted for it in the first place. Like, you may feel passionately one way or the other, but I'm begging you. Underwrite it is if you're going to pay for professional property management, and you will never have to worry about that debate. You'll just make more money if you don't hire if you're doing the job well. 100%. That is great advice. We do have several more questions to get to,

but first we have to take a quick break. We'll be right back. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating income and earning your trust while they do it. And that comes down to three numbers, occupancy, delinquency, and net promoter score.

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Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen pipes, icy walkways, and seasonal wear and tear can increase the likelihood of claims. And traditional insurance companies aren't always built to handle these claims quickly or smoothly. That's why more real estate investors are turning to steadily. They focus exclusively on landlords, whether it's a single-family rental, a burr-builder's risk policy, or mid-term holiday guests. You get fast quotes, flexible coverage, and protection for property damage, liability, and even loss of rental income.

is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. Welcome back to the Bigger Pockets podcast. I am here with Henry Washington answering your questions. Our next question comes from Steppen in Phoenix. He wants to know, would you take on this flip or is it too much? Well, I'm already disqualified for me answering this question.

Stepan says, I found an off-market property in Central Phoenix that could be a solid flip or rental, but it definitely needs some work. Purchase price, 285K. That's cheap for Phoenix, by my understanding. With a rehab estimate of about 115,000 and an ARV of 500,000. It's a 2-1 main house with an attached 1-1 unit. Oh, I like that.

Roughly 1,800 to 2,000 square feet. This is not step in talking. Just as a reminder, that was 285 purchase price. 115 as the rehab air view of 500. Steppen then says the renovation list is pretty long. Roof, A-track windows, full interior updates, electrical plumbing landscaping, basically a full gut. But the location is great and the layout could work for a flip or a rental with multiple

units. Would you take this on or does it seem like more hassle than it's worth? Curious to hear how you all would approach it. All right, Henry, I see you calculating and doing your flip. robot thing over there. Tell us what you're writing down and what calculations you're doing over there. Yeah, I was plugging in these numbers to see, first and foremost, if 285 is a reasonable price to pay to do this deal. So you've got a ARV of 500,000. So if you take that ARV of 500,000, when you sell that property, you're going to have to pay 6% to an agent. So that's 30 grand. You're going to

have to pay about 15 grand in closing. So you're at 45 grand. You're going to pay maybe 12 grand in holding costs. So 57,000. And then another 115 for the renovation. So 57 plus 115 is 172,000. So you've got 500 grand minus 172, which gives you 32,000. They're saying they're paying 285. So if you subtract 285 from that 328, that gives you a net profit of $43,000. Now, I'm not saying $43,000 isn't good money. That's awesome money. For me, if I'm risking 115 in the renovation and only making 43, that's a little too thin for me because $15,000 renovation says there's a whole lot of work to be done. What if I missed something that needs to be done? What if I under budgeted by 20, 30 grand? Well, now my profit goes from 40 down to like 10 to 15. That's just, and it's probably going to take

you six to eight months to do this if you're going to be efficient even. So I don't, you know, this is, it's too thin at that price point. And my rule of thumb, I've talked about before, I want to make what I put into a home. So if I'm spending 115, I wouldn't want to make anything less than like 90. If you can uphold that principle that you have of making an 100% return, essentially, that's pretty darn good. It probably doesn't always work out that way. But if you target that, if you aim big and you miss a little bit, you're still going to do just fine.

For me, the numbers here don't make sense to me. The risk reward profile is just not right. Absolutely. Like you said, 43 grand is a ton of money. That's not the problem here. It's the amount of effort and the amount of capital that you have to put up and risk to make that 43 grand, I think there's just probably easier ways to make 43 grand, I guess is another way of putting it. You can take on an easier project, a less intensive flip, a less risky

thing than taking something down to the studs, and make 43 grand. I would just keep looking. The only other thing that came to mind, I was curious if this would work as a burr, because once that Stepan said that it was two units, there was a two-one main house, a one-one unit, like, could you get this to close to 1% rule after? Probably not. I don't know what this area of Phoenix is. I think to make this work as a bury, probably need to get $4,500 a month in rent. And I'm guessing in three total bedrooms, you're not getting there. Yeah, they're all in it 400,000. So you need to be getting $4,000 a month. And I don't, yeah, maybe. You may get there. But then, you know, you're refinancing at 75% of value. I don't think you'll be able to pull all your money out. You're going to have to

leave some in it. Yeah, you definitely have to leave some in. For me, that would be okay. But to answer your question, Steppen, it seems like yes, it's more hassle than it's worth. If you want to answer. I would not do this deal at that price. It's not worth it. I would need to subtract $42,000. So I'd pay $240, $243 for this property. Okay. Well, there's another option. So Step, and if you can negotiate this thing down, get into that 240 range, 2.45 range, maybe it would be worth it. But it sounds like at this price doesn't work. All right. Well, let's move on to our fourth question, which is, I'm curious your thoughts on this one. This one is about exclusive agent agreements. The question reads, I want to do fix and flips. I connected with an investor-friendly real estate agent. We had a good conversation. And now he wants

me to sign an exclusive buyer agency compensation agreement. I plan to purchase a property within one month, so I hope to work with multiple agents and expose myself to as many deals as possible. Is it a rule that I have to sign the agreement if I work with agents to find the deals? So I'm curious, Henry, if you have one of these. But first, can you just tell everyone what an exclusive agent agreement is? Yeah. So in this sense of the question, exclusive agent agreement, this agent is asking the seller to sign something that says that they will only exclusively work with this real estate agent.

And that protects the agent from you going out and finding another agent and doing deals with other agents. And I do not sign these. I don't sign these at all. And I work with the same real estate agent for almost every transaction. Now, when I do have a property that my agent either brings me to buy or that my agent is going to sell for me, I will sign an agency agreement for that specific property. Of course. And that just means that I won't work with another. agent on that specific property. Those I sign for every property that I'm going to work with that

agent on. But it's property specific. So I'm okay signing it. Property specific. I'm not okay signing it, not tied to a property. And the reason for that is, well, a couple of reasons. One is if you sign this and then your agent decides to not be as awesome, right? Well, now you're stuck working with this not so awesome agent. They don't have incentive to perform well. The other thing is other agents may bring you deals that could make you money. And now for you to do those deals, you'll have to find a way to bring your agent in on them. And there may not be room for your agent to be brought in and paid on those deals. And so I think you can work exclusively with an agent. You just have to have some stipulations. And there has to be some trust. And so what I do with my

agent, I'll happily share with everybody. The agreement I have with the agent that I work with is any deal that I buy direct to seller, he is not involved in. But if I sell that deal, so if I buy something and renovate it and then sell it, he will list that property. He gets exclusive access to list and sell all of my properties. Now, I haven't signed the document saying that he gets that. That's just the agreement he and I have, a gentleman's agreement. Right. So because what he does in exchange for that is when I'm buying properties off market, I still need to know what's the value of those properties. And so he will help me determine the values of properties that I'm buying, even though I'm not using him as my agent on the purchase. And he's doing that because he knows when I

go to sell them, he will get to be the agent that represents me on the sale. He also understands that part of our agreement is that if some other agent brings me a deal that I will use that agent to buy that deal and if that agent wants me to, I will use that agent to sell that deal because that agent brought me the deal. He brought me the thing that's going to compensate me. And so we agree that that that's fair. And that's just the agreement that he and I have. We didn't, we don't, we didn't have to sign some exclusive agreement in order to have that agreement. So there's going to have to be some trust. And maybe if your agent wants you to sign this agreement, it just means you guys haven't built up the trust in your relationship yet. Maybe you just need to work together some more

until you get to a point where he trusts you and you trust him and you just, you know, you have that gentleman's agreement. Yeah, I think what you have with your agent is entirely fair. And that's kind of like the perfect scenario, right? Like you're giving your agent plenty of business. He's bringing you business. But it's not like you can't make money from other sources. That just doesn't really make sense. And I get it. I do understand. from an agent's perspective that they don't want to waste their time and show people a bunch of properties and then have the buyer go and work with someone else. But at the same time, as an investor, I just don't really see what the benefit is to me to signing an exclusive agreement.

There's not one. There isn't one. And so in today's day and age, anything on market, any agent can sell you, right? So I don't really see why I would. sign an exclusive for that because if you're going to giving me good service, I'm going to work with you. Like, I'm not going to go shop for other agents for something on market if you're providing me with a good service. But for everything else, like if you're finding pocket listings or off market deals, like, I would take those from anyone. Why would I limit myself for the amount of deals that I would be able to see? And it's not like I'm leading people on. When an agent sends me a pocket listing, I'll tell them if I'm interested or not. And if they

sent me the pocket listing. I'm not going to take it to a different agent. I'm going to use them. But the commodity here is the deal, right? And so I'm going to work with whoever can get me the best deal. That's the way it should be. And look, I know it's annoying to show houses and end up not getting a deal. I know it's annoying to put in effort and then not be compensated for it on the back end. Unpopular opinion, that's the business you signed up for. It's also every job. Like, that's every job. That's part of the business. And yeah, there are some things that you can do to limit that, but that's going to happen. It's like the cost of doing business for being an agent. Sometimes those things are going to happen. Yeah. How many times do you negotiate direct to seller with people and it doesn't

work out? Pretty much almost all of them. Yeah, exactly. It's a numbers game. I just, I mean, I spent an hour and a half at this guy's house today. Did he want my offer? No, he didn't want my offer, but it's part of the business. That's just part of the business. Exactly. It's just part of being in a service industry is like part of what you're doing is sales and testing people out. And as an agent, you have a total right. Like if you don't want to be with someone who you think is a tire tire kicker, don't work with them. You don't need to. That's the other end of this. As you become a, you know, a respected agent and you build out your portfolio, you might not need to work with as many people. And this agent may be at that point in his or her career where she's saying like, you know what,

you have to sign this because I have lots of great clients. I don't need you. Fine. That's great. Good for you. But like that not every agent is going to be able to sort of command that level of exclusivity and commitment with every type of investor. That's just it's just not going to work out that way. That is a great point. And I'm glad you bought that up because the other side of this coin is like we as the investors have to be okay if they don't want to work with us because of that. Like that is it's not personal. Right. Like it's your business. You run it how you want to. If you think you need this in order to run your business the way you want, that's perfectly fine. We probably just don't need to work together.

There's no hard feelings there. Like, that's just how it is. Go find somebody that will work with you the way you want to be worked with. That's normal. That's okay. Yeah. Well, I'm glad.

That's a very reconcilatory tone. Before we go to our break, we'll be right back. Bigger Pockets is hosting a really cool, fun, new deal analysis challenge this week only from June 16th to June 23rd. Here's the deal. If you analyze 7. properties using BiggerPockets calculators during that time, you can be entered into a random

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support our show by saying you heard about Indeed on this podcast. That's Indeed. Indeed.com slash rookie. Terms and conditions apply. Hiring, indeed, is all you need. Welcome back to the Bigger Pockets podcast. Henry and I are answering user questions. This one comes from Dave in Chicago. Dave says, I have four rentals. All are cash flow positive, but I'm running out of capital to buy more. One option is to cash out refi one property that has $400,000 in equity. If I take out $200K, that property will have a negative cash flow. 500 bucks a month, but the overall portfolio will still be cash flow positive and I'll have capital for another purchase. My goal would be to burr a new property and recycle as much capital as possible.

Any thoughts if an individual property can have negative cash flow to provide capital as long as the portfolio as a whole is still positive? I like this question. And I like talking about portfolio level strategy because I feel like we talk a lot about deals, individual deals, but figuring out how to use your whole portfolio to grow, something I love. But Henry, how would you approach this one? Well, first to answer his question, is it okay to do that? I think it can be okay to do that. As long as you know your numbers.

In other words, you need to know or at least have a great idea of what your expected return is on the money you're going to go spend to buy more property. In other words, you need to know, is that money making me more money staying put where it is? or is that money making me more money by me pulling it out, it's going to cost me a little bit in negative cash flow. But even if I calculate that negative cash flow and add that to the return I'm going to get from the assets I'm going to buy, is it going to make me more money? Like, that's the math you need to do.

Nine times out of ten, if you're buying in a cash flow heavy market, yeah, that that's going to be fine. And so I don't think there's anything wrong with doing that. Now, is that the approach I would take? No, that's not the approach I would take. I wouldn't refinance the property. I would get a line of credit on the equity. So that way I'm not restructuring my loan at a higher price point. I'm keeping my mortgage payment essentially the same.

And then that way, I will have an additional payment on the HELOC, but that money is only interest only on the money that I actually use and not paying interest on the entire amount from the second I pull it on a refinance. And so that way, if you go get a line of credit and you get access to, you know, $350,000, on a line of credit, but you only need to use 50 to 75 of it to go buy your next property. Well, you're only paying interest on that 50 to 75 because that's all you have out on that line of credit right now versus if you refinance it and you get a new loan at a higher amount, your interest is front-loaded in the first five to seven years on that mortgage. And so you're paying a whole lot more for that money

and a refinance. So I would just do a line of credit versus going to get a refinance. That makes a lot of sense, especially if you're during the Burr strategy where you're going to be coming out of pocket for a lot of renovation costs. Like you could probably pay for the acquisition and the renovation costs with your line of credit. I don't know what rates are at, but it's probably going to be a very competitive rate

compared to a construction loan if that's what you were going to get or any sort of renovation-style loan. So I think what you're saying makes a lot of sense. My questions for Dave would be, one, is the deal you're going to do great? Because it sounds like you have a pretty good portfolio. And if you're slowing down in acquisitions, that just happens.

That's just part of being a real estate investor. Like you run out of capital and there are sometimes where you should just wait and save up your money. And if you're cash flowing every month from your four rentals, maybe you just enjoy that for a little while and then use the cash flow to buy your next deal. But if you're seeing great deals out there, yeah, like you could do this. I think Henry's point is really good. Doing a helock just seems like an easier way to accomplish. the exact same end. But the other thing I would ask you is like, what is going to happen to that

other deal if you refinance it? Because sure, I can envision scenarios myself where I would carry a property that is cash flow negative for a while, but not indefinitely. So that's the other thing I would ask is like, well, let's just call it property one. This is the one you have 400K in equity and you want to take 200,000 out. You're going to refi it. And then it's losing 500, a month. How does that get back to cash allowing? How long does that take? Is that going to take years? Did you already do a bur there? Because if you've already

done a bur there and already added value, then I'm wondering what that property is doing for you in your portfolio, right? It's not going to value add. You're not going to build that much equity. You're losing cash flow on it. Sell it. Sell it or he lock it. But refying it seems like it might be the worst of the three options.

Yeah. That's a great point too, because at some point, if you tapped all that equity, now you're stuck because you can't even sell it and get out of it. Yeah. Another option could be you sell it and 1031 it into a, you know, duplex, triplex, quadplex, a small apartment building. So that way you're taking that equity and then you're paying down a larger asset quite a bit that's going to get you a ton of cash flow.

If you go and put all that cash into a, you know, four, five, six, seven, eight, ten unit building. And you're putting down a hefty down payment. that's going to get you a lot more cash flow as well. Definitely. I was reading about the multifamily market in Chicago last night, and it is a good one. No one's building anything there. It could be a good option for you. All right.

Well, those are our questions from today. Thank you, Henry, for joining us. Appreciate all your insights here. Oh, man. Thank you for having me. This is a good time. And thank you all so much for listening. Before we go, as a reminder, all the questions that we talked about today came from

the Bigger Pockets forums. So if you have any questions that you want us to answer or you want to want just the wisdom of the BiggerPockets community to weigh in on, go to BiggerPockets.com slash forums, get that expert advice from thousands of BiggerPockets users, and of course, Henry and I might tackle them on our next Q&A episode. Thank you all so much for listening. We'll see you next time. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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