Need help deciding between BRRR and selling
I recently finished a project where I did a value add SQFT I took a home from 700 sqft 1/1 to 1700 sqft 3/3. I owe $192,000 in a loan to a family member and I used $50,000 of my own cash. This puts me all in at $242,000. My initial thought was to sell the home but the market has been slower and I can rent the home for around $1,900 to 2,200 a month in rent. Refinance would be at a $385,000, 80% LTV ($308,00 cash out).
My PMI would be $1,944.00 at the highest LTV pull out. What would you do if you were me? Cash out refi BRRR or sell and use that money for more projects.
Most Popular Reply
#5 All Forums Contributor
- Plymouth, MI
REI should always come down to a simple math problem, and the math here is giving you your answer...like a hurricane.
First option: Refi
New ARV = $385,000
REFI = $308,000
Loan = $1944/month (plus taxes, insurance and PM if needed)
Rent = $1900-$2,200/month (let's go at $2000)
Analysis -
Cash flow would be at $56/month, minus taxes. insurance and maybe PM. This puts you at a negative CF for sure, and probably a big one. This alone should give you your answer, but let's continue.
Cash out of $308,000
Owe Family - $192,000
Cash to you $116,000, minus your cash (debt to you) give you an end profit of $66k.
Now factor in the negative CF/month, and it won't take you long to eliminate this profit into a loss.
Second option: Sell
ARV = $385,000 (assuming you get it all)
Closing costs = about 20% so $77,000
Owe = $192,000
Profit = $116,000 minus your cash in gives you a profit of $76,000
Yes, I know it looks the same as the REFI, except you are losing money every month due to negative CF with the REFI. That's not happening with the sale. So, find another property, or properties, that you can use the $76,000 profit on, and move forward. Before you say a REFI would give you a property that would appreciate keep in mind you would be buying a property that would also appreciate but wouldn't be losing you money every month.
Also, and this is a big one, your family would probably reinvest with you since your paid them back. Next property, keep your cash profit from this one and just use their cash.