I have a BRRRR property in escrow with opportunity to backout due to some inspection items the seller is not willing to fix. The deal will provide over 20% Cash on Cash but all in cash will be essentially at the expected appraisal value. Therefore, I'll leave in quite a bit when I refi after rehab but make virtually nothing when I sell it down the road. The area doesn't appreciate (depreciated over last ten years or so) at all so time will hurt me more than help me. My analysis/numbers are solid so my question is should I buy a property that will indeed provide a 20% plus return knowing I'll make nothing on the back end?
@Eric C Gunderson You're best bet is share the numbers and discuss the strategy. I'm guessing your calculations for the COC is off. It's not impossible but given today's market that's a BIG number. If you're stuck with a large amount of cash in a BRRRR deal you're simply not buying it low enough or over budgeting for the rehab.
The area depreciated over the last 10 years?? The cash-flow better be worth the risk otherwise I wouldn't even consider this deal. Actually, I'd pass on this property based solely on that. That's just my opinion. Appreciation is wealth building pillar so I expect my properties to keep up with inflation.
@Jaron Walling Trust me, the numbers are correct. I have another duplex here and already doing virtually the same thing in COC (17%). I had 30 potential renters to choose from. This area has virtually zero vacancy but its a depressed small town with ceiling on house value. No new builds, houses from turn of the century. If you believe the numbers would you do the deal?
@Eric C Gunderson I'd go for that deal if I could pull the majority of my cash out at the refinance. I'd also expect to cash-flow in the double digits as well (10-15%) after PITI and expenses (CapEx, maintenance, vacancy).
I gotta agree that I personally wouldn't execute the deal. The depreciation could quickly outweigh the benefits. It also takes away the ability to have an exit strategy, use for HELOC, and most importantly -long term growth.
@Jaron Walling Thanks for the input. It's just frustrating that you need to put a fair amount in the rehab to max out the rent levels in the town with ceiling on home value. I'm new to the game so I'll get better at finding "better" deals; especially in a different market. Just nice know vacancy is a non issue. Again, thanks for the feedback.
@Daniel Kelley Thanks. Good points. I just keep getting hung up on the 20% as I'm new to the game comparing to my stock portfolio that is now just back to flat for the year. Actually, some accounts still in the red.