Am I on pace to BRRRR for my first deal?

Question

24 yr old Cleveland based Agent/soon to be investor, bought my first rental in October.  I wanted to get some feedback from you guys to see if I'm on the right path to Brrrr, as I sometimes second guess my first deal...   Here are the numbers!

117,000 Purchase Price. (conventional loan)

133,000 Appraised value (before renovations)

17,550 Downpayment (15%)

20,000 in rehab (still rehabbing)

I bought in a very established/trendy part of Cleveland (Ohio City).  I could easily rent out my place between 1300-1500 making 300-600 passive per month.  Big investing goals ahead, looking forward to the feedback!

Blake Mackenzie Hochadel · Answer

Thanks for your insights Brandon.  Learning as I go on this subject!  I now see I'm better off starting the BRRRR method through private money on my next deal.  I got my convention loan because it is a live-in-flip.

I would have to disagree though on this being a complete busted deal considering I could gross 400-500 monthly if I rent it out down the road.  Also selling is an option as the two neighboring comps sold for 165k & 175k.

Brandon Sturgill · Answer

@Blake Mackenzie Hochadel You bought at close to 90% value...and you are putting $20k into a rehab...how did you get an 85%LTV conventional loan on a non-occupied property that needs a renovation??

You have costs on the acquisition and holding side...I do not see any acquisition costs here outside of a 15% down payment...what are your other costs with the deal?

If you assume your renovation is a dollar for dollar value add, you have a $153k property after the repairs and stabilization...you'll have a 70%LTV re-fi...placing you at $107k...you have a lien balance close to $100k...factor in costs to refinance...and you can see where this is going. This is a busted deal and the BRRRRR won't end favorably.

I can tell you BRRRRR is a cash acquisition strategy...I have never seen BRRRRR work on a conventional financed deal for anyone buying at over 60% of ARV....50% of value would be more ideal.