Originally posted by @Bill E. :
I'm looking at a property 2 bed 1 bath, arv of 65-70k. It's being sold as a mortgage takeover with 15k down, with a balance of 29k at 6.5 percent, mortgage end date is 2032. PITI is 350, can be rented for 650-725. To get the arv to 65-70k I will have to put in about 20k. What is the best way to work this deal. I would be holding the property long term. Was thinking of brrrr strategy, but would like some insight from more experienced investors.
According to my calculations your PITI is about 54.55% of your income and debt service is about 39.37% so all in your net income is about $39 a month or $409 a year or 6.09% of your revenue is actually profit which puts you at a CoC of 1.34%.
With the numbers you gave me you could get a 10% CoC return if you either A) pay 15000 all in for the property or find a way to raise the rent to $976 a month. Take it with a grain of salt but I don't see where you have a BRRR if you are paying 44K then putting 20K into a property worth 65K after repair, all in you are paying 64K to sell at 65? What if the market turns against you? The seventy percent rule off thumb would say pay no more than 25.5K for this property.
I performed this analysis as a year one cf scenario so it doesn't take into account what would happen if you bought this deal and then refinanced it into a longer term mortgage with a lower interest rate, even still the difference doesnt seem that significant but it could be. I simply haven't built that capability into my model yet.
Best of luck, I can't make a recommendation but those are the numbers based on what you have given me.
Howdy @Bill E.
I agree with @Adrie Moses-bailey . If you are wanting to get all your cash back out and payoff the original loan the purchase price should be no more than $25.5K. Here's how we get there: 70% of $65K ARV = $45.5K. $45.5 - $20K Rehab = $25.5K.
You also must consider Closing and Holding costs. Which can add an additional $6K - $10K to the equation. Let’s assume $8K.
If the refinance loan is $48,750 (75% LTV) you would be able to payoff the original $29K loan. However, out of your $43K cash invested ($15K down payment, $20K Rehab, $8K Closing and Holding Costs) you would only be able to pull $19,750 back out.
If you can only get a Refinance loan that is 70% LTV, then, you get even less cash back.