My first BRRRR calculation

9 Replies

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

@Matt Kellogg

when you refinance, you should be able to get a loan of 70-75% of the ARV, so in your case, your new loan should be $84k to $90k. It will pay off your acquisition loan, and most of your other costs.

I think you only put $36K as your new loan amount after refinance.

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.

@John Levelle is your suggestion "A" based only specifically on this deal and these numbers? Or is it a more general viewpoint you have on most BRRRR deals?

The refinance should be on your ARV, namely $120,000, so it would come to $90,000. Also, unless you're in a really expensive market, it's hard to get a 30 year amm. on an investment loan. So I would drop that to 25 or even 20 unless you've talked to a lender you think can do 30 for an investor.

I think the glaring thing is that it's not a BRRRR.... You are refinancing at the same rate and term as the acquisition loan, which defeats the purpose of refinancing. You have way too much cash invested in the end to be able to repeat the process. You need to cash out refinance at $80k, then see how you cashflow....
(267) 520-0454

@Jeff Kelly

I'm basing "A" on the numbers he presented for this deal. It looks like he is not pulling any of his own cash out. Therefore, it really is not a BRRRR strategy. So why waste the time and money to Refinance if you already have a conventional 30 year mortgage.

This post has been removed.

Account Closed

I am not ashamed to say you just did a “Fly Bye “ for me.  Not sure what you are asking for.  Are you relating it to Net Worth?

Thank you all for your added input. 

Here is my current financial situation: My primary residence is paid off and my current equity is worth about 200k. I feel confident I could get a home loan for 80% of the value and put this towards my future rental deals.

Honestly though, I'm unsure if I should do an all cash deal and invest my equity - too include the rehab/vacancy/insurance cost etc. or if I should apply for a home loan directly on this new property and just pay the 20% upfront. Ultimately saving most of my equity for other rental deals. I feel confident that this property would require 20-30k in rehab costs, but is would increase the ARV to around 120k or more. The property is in a great location, the property value in the area is only going up. It has high valued comps and there seems to be a great potential for a good ROI.

The goal for me (and many others I assume) is to lower my monthly expenses while generating as much passive cash flow as possible. With that said, being my first rental, I don’t want to bite off more than I can chew. 

So many things to consider and I am far from the level of real-estate education I’d like to be, but you need to get your feet wet somewhere. Did anyone else feel this overwhelmed on their first deal 😝.

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