Can I Make This Flip Work As A BRRRR?

Question

Buying a flip for $161,000, hope to flip it under $20k and sell for around $225k conservatively giving me $45k in profit. Wondering, though, if we could somehow make this cashflow as a BRRRR. As I've been doing the numbers, I'm a little negative on the cashflow because what we would need to mortgage to get our $ back out would make the mortgage payment too high to cashflow when the rent would only be about $1,700/month. Short of charging more $ per month for rent, is there something I might be missing? My understanding with the numbers is that the only other way is to get lower interest on the mortgage. I penciled it out at 6%.

Jake Baker · Answer

@Ty Moore

If you are refinancing into a DSCR (debt service coverage ratio) loan, which is a very common refi loan for BRRRRs, you will usually need to 1.0 ratio (rent/expenses). So if your ratio is too low, the lender will lower your LTV (loan to value) to meet that 1.0 ratio.

I use DealCheck to analyze my refinances because of their offer calculator feature to tell me my LTV based on that 1.0 ratio.

It is good to shop a few brokers because they offer different DSCR products. I can recommend you a few if you are interested.

Bob S. · Answer

Terrible deal all around, PP 160k, CC and CC plus reno of 20k, all in 190kish, HOPE to sell for 225k, way to tight, Rent for 1700, again, terrible unless you are happy with 3- 4% net cap

All the best

BTW get it for 140k then maybe a flip

Jeremy Horton · Answer

Do you have to buy it in cash or can you do a conventional loan for the initial purchase?

Reason I ask - I've done a couple like this lately...

Here's my most recent:

Purchased for 150k and put 20% down (30k) - loan amount is for 120k

Rehab will cost about 15k (15k) - plumbing is good, some paint I'll DIY, some flooring, electrical box (3k) and misc

ARV will be around 200k

Will rent for 1600/month

So I'm all in for about 45k (yea it's a good chunk). But if I bought with a DSCR loan and put 25% down I'd be looking at 50k down off the top and have a 150k mortgage.

So I did this deal because it's in a solid B+ area - best school zone in the city. House is in great shape (brand new roof, 5 year old HVAC). So say I'm even all in for 170k - that puts me at 85% ARV - so I'm getting 15% equity capture at the buy (which I don't think is talked enough about). House is in great shape so minimal rehab is needed so repairs/maintenance/capex should be small for the first 5-10 years, I get to keep the asset, and I get a little cashflow with it, the tax deduction and all the long-term benefits

I have a high paying W2 so I steer away from hard money just because it's so much more expensive to use and I'm not doing the volume to necessitate it

Jason Wray · Answer

Ty,

How are you running your numbers in terms of toal purchase price, down payment.

Rates are not at 6% for an investment property unless you are putting 30% to 40% down. If this is a Primary home you can get a rate for under 6% with credit above 720. On an investment you will need 15% down minimum so at a sale price of $161K your mortgage P&I would be around $941.80 that based on a 7.75% 30 Year.

What are the common rents of that market?

Nathan Harden · Answer

I would re-run your numbers for the flip aspect. You are not calculating any carrying costs or closing costs on the final sale. The margins on that flip are terrible, do not try and flip at that purchase price, PLEASE!

A good rule of thumb for flipping is 70% rule. Buy it for 70% of the ARV, minus the repairs on top of that. So you should be looking at a purchase price of somewhere around $137k. I would offer even lower, just because a $20k rehab seems very minimal, always leave room for things that come up during the renovation process.

David Fern · Answer

As has been mentioned, this deal is pretty lean, I personally would not buy something with this tight of margins. Would probably need another 20-25k spread IMO.

Holding costs need to be calculate with interest, it costs 10% to sell, rehab costs always are higher than you think (esp if you’re a beginner). Loans cost $8-10k to get in my area for this purchase price. Rents are dropping nationwide.

Be careful. I love REI, but I don’t love losing $ (which I’ve done). Buy equity, it’s your safety net. If you buy at this PP, I recommend being OK with breaking even and hopefully learning a ton. Every house I have bought has taught me a ton. Good luck on your journey, and nice job reaching out with your post!

Nicholas L. · Answer

@Ty Moore

your numbers are off as a flip.  if you're buying for 161K you'll have closing costs on the buy.  you're "hoping" to spend 20k on the rehab - so you'll spend more than 20K.  then you'll have holding costs, plus 8-10% of the sale price for closing.  then you'll pay taxes.  that's basically 0 margin.

you'll have similar issues if you BRRRR.  but feel free to post all of the expenses if you want more advice.  all-in purchase price, itemized rehab budget, comps for 225K, and closing costs on the sale.

AJ Exner · Answer

Absolutely, so it sounds like that post rehab appraisal will be a big aspect (as it usually is).

So what we are referring to is 'seasoning', which is basically the amount of time after you purchase a property that you can wait before you refinance at a new value. Most lenders require you wait 6 months of 'seasoning' time before they will refinance, while there are a few that will do 3 months, or even less in a few regards.

Feel free to shoot me a message or give me a call, happy to walk through what it might look like for you if you are interested

Ty Moore · Answer

Thanks for your post Ben. Would you please elaborate?

Can I Make This Flip Work As A BRRRR?

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