My first BRRRR calculation

[Matt Kellogg]

Hello everyone!

I am new to the BP scene, and would like some advice on my first BRRRR calculation. I'm on the brink of making my first purchase towards (hopefully) a successful real estate investing career. My goal is to have 5-10 buy and hold properties within the next few years. With this one being my first, would anyone be willing to look over my initial report and see if I've missed any big areas that might significantly change my results?

I’ve left the location pretty vague at the risk of potentially outing a good deal. I know that most of that information will play a significant role in determining whether the property cash flows well enough, however I’m more interested in the numbers I’ve put in. I’m looking for mistakes or considerations I may have missed. With that said, if you would like more details, let me know. I’ll see what I can divulge 😉.

Thanks again!

-Matt

https://www.biggerpockets.com/calculators/shared/986642/947f4335-96d2-4652-b39c-1010800ca34b

[John Leavelle]

Howdy @Matt Kellogg

I will provide feedback in the form of questions;

1.  Are you planning on using conventional financing for the acquisition?  If so have you confirmed you can based on the under $50K loan amount.  Many Lenders will not support that low amount.  Why are you listing $1,000 for points/fees?

2.  Why 24 months to Refinance?  Rehab is 4 months, so, you should be able to Refinance within 12 months at most.

3.  Why a refinance loan of only $36K?  That may only cover your original loan.  If that's the intent why bother with a Refi?

4.  Did you include Holding costs in your Rehab numbers?  These include loan payments, taxes, insurance, utilities, lawn care, and any other costs that occur during the Rehab period up until the property is fully rented.  The BP calculator does not have a separate entry for this important cost.  I include it in the Rehab number.

5.  You did not include Property Management in your Cash Flow analysis.  You should always include it even if you plan to self manage.  You may decide you want a PM at a later time so it is best to include it now.  10% ($110).

6. I am assuming you did not have a larger Refinance loan so you maintain the same Cash Flow result. Obviously, if you were to take out the entire available amount of 75% LTV or $90,000 it would have a big impact in your Cash Flow. $90,000 @ 5% APR/30 yrs = $483.14 P & I. Add PM and your Cash Flow looks like this:

$1,1000 - $1,073.14 ($590 expenses + $483.14 P&I) = $26.86 mo.

Here are your options as I see it.

A.  Do not Refinance if you are not planning to pull any of your own cash out.  It just adds extra expense and lowers your credit rating.

B.  Figure out a Refi mortgage payment/Loan amount that allows you an acceptable Cash Flow number.  Example:  $70,000 loan ($375.78 P&I) = $134.22 mo CF.

C.  Look for another deal that meets all your criteria.