Cash flow vs. extra cash out

[Gary Parilis]

I'm doing a bit of math on a potential deal, and the way it works out, I can potentially put in $80k (purchase for $60k, rehab for $15k, $5k refi closing costs), and increase the ARV to $120k. Thus, I could take $90k out in the refi (75% of $120k). But the rents aren't so high. After considering mortgage, tax, insurance, management, vacancy allowance, repair allowance, I'd just about break even monthly. I'd be getting $10k out of the deal, plus a property that my tenants would eventually pay for -- and which would begin to cash flow modestly as I increase rents over time. Alternatively, I could borrow only $80k, but that wouldn't reduce my payment very much (and besides, I want the cash for my next deal).

All this is just a preliminary analysis so far -- I have to sharpen the pencil on these estimates, but I'm interested in opinions on the concept.

Another consideration...this would be my first BRRRR and it's a long-distance one. It appears to need only modest renovation (floors, paint, appliances, etc.), so it would be a great practice BRRRR to get my feet wet and build my confidence. That's great value on its own.

[Whitney Hutten]

@Gary Parilis What does this rent for? If it is cashflowing and you can get all or most of your money back it, I'd consider this a win. I think if BRRRR as a series of base hits, until you find the ONE that will be a homerun and give you a bit of money back out. You are acquiring a portfolio of properties that cashflow now, with very little of your own capital into them, that your tenants will pay down, and have a reasonable chance of appreciating... So that is 3 ways you are getting paid passively. Then you have the tax benefits and the inflation hedge.