# Is purchase price good for project. Should I use 50% rule or not

2 Replies

I am trying to evaluate a potential project and I have positive cash flow, however when I look at 50% rule it's negative. I am using private money and am trying to determine is this a good deal. Cash flow is approx \$538 month and this is a BRRR deal. Purchase price on house is 105K with 225K for rehab, approx 17K cost of money and I'm looking to take 50K out for profit after refinance, Income approx: 3400.The ARV is approx \$450K I would appreciate all feedback.

Thank you

Julius (New Investor)

50% rule is a first-pass filter for whether something is even in the ballpark. Never use it as the basis for an actual purchasing decision.

You need to calculate your expenses comprehensively and make sure you have a clear picture on the cash flow - I'd suggest using the BP BRRR or Rental Analysis calculators to make sure you're not missing anything. Based on your numbers, I'm skeptical of \$500/m net cash flow...

If your ARV is 450K and you have a lender that will loan at 75% LTV, your loan amount will be ~335K.

Purchase + acquisition + financing = 105 + 225 + 17 = 347K. That leaves you with 12K in the deal. Where are you getting a 50K profit from?

HEllo Aaron,

I was actually looking at trying to find a lender who would do a deal leaving 18% equity. I used the BRRR calculator to get the numbers. I have some flexibility in lower the renovations cost by 25K and the profit cost if I have to do 25% equity. THe numbers would all reduce 105 +200 + 15 + 15(profit) = \$335. The cashflow would actually be much higher with those numbers as originally I had a MTG at \$392 that is where I had 50K in profit.

Thank you for your insight I really appreciate.