brrrr #'s not adding up...potential flip?

Question

Hey everyone I had a question on a potential property I was going to flip or brrrr. I will be using all personal cash for purchase & rehab...Here are the #'s

Purchase $75k

rehab costs: $15k

ARV: $120k

BRRR cash out 70%LTV = $84k

PITI: $657.00  ***High taxes in this area

Vac/Cap/Maint/Mgmt BREAKDOWN:

VACANCY  $103

CAP $37.50

MAINT $52

pm 1ST MONTH on new lease $87.50 ($1050/12)

PM 10% fee $105Total monthly operating expenses $385.00

Rent: $1050.00

Cash flow after BRRR:  $9.00

or Flip potential +-$25k before taxes

Curious if my Operating expenses are inline, or anything else seems off?  Is this property just a pass with a brrrr strategy and do the #'s line up for a nice flip?

I am in a position right now where my life is not in need of extra cash flow and I have reserves to cover sudden expenses if needed. But obviously the cash flow would be nice.

Thanks in advance!

Adrian Birchler · Answer

Hey @Dustin Bradley I am a local realtor and would be happy to pull some comps and give you a second opinion on your numbers if you'd like. I'd need more details on the home of course. Also happy to hop on a call or meetup over coffee if interested - just shoot me a message!

Ps: if the property is in the Columbus area our management fees start at 8% which would help with cash flow ;)

Tamara Deering · Answer

The numbers are tight on a flip, your cash in would be $90,000 not including closing costs and construction overruns, selling fees about 7.5% commissions, closing costs, property taxes so profit is about $21,000 less purchase costs. So some options, you can take the risk on a flip if you've got good contractors and construction experience. You can self manage and get your expenses down. You can buy it, fix it up and sell it off market as a seller finance, so you get monthly income with no repairs but all of your capital is tied up except for a down payment. Typically on a seller finance you can sell for a higher price and charge higher interest than normal say $130,000 request 10% down and 8-10% interest. You could then sell the note. You could BRRR anyway with less than optimum cash flow if you expect the area to appreciate or you could leave more money in the deal when you refinance and increase your cash flow.

Personally, I don't hate the numbers on this deal but if it doesn't meet your strategy or you are fudging the numbers to make it work I would pass. You don't want your first deal to go south, that takes all the fun out of it.

Personally, I don't hate the numbers on this deal but if it doesn't meet your strategy or you are fudging the numbers to make it work I would pass.  You don't want your first deal to go south, that takes all the fun out of it.

Dustin Bradley · Answer

@Lucas J Holt This home is close to Cleveland not Columbus. Ill know later today whether or not we move forward, my contractor is checking it out now. Ill post the address and more details here later today hopefully. Thank you for your feedback it is appreciated!

Dustin Bradley · Answer

@Lucas J Holt The deals are def  not hangin on trees but they are out there. The $120k arv in this class B is a conservative # compared to the other comps that have sold in the last 6 months within 1/4mi. Happy Hunting!

Dustin Bradley · Answer

@Tamara Deering Thank you for the reply. We may be able to get the purchase price down $5k, but this wont change my monthly operating expenses much. If I leave an extra $10k in the deal during refi, itll lower my refi amount only $50.00. I am being conservative with most my #'s and dont want to fudge them much to justify the purchase. I used the bp brrrr calculator and I am amazed by how much more my monthly expenses are compared to the 50% rule. The taxes in the area are pretty high as well.

I am a homeowner in California but this is  would be my first investment deal and is oos. I have put together a team in the area but have not put them into action just yet especially the construction side. I am in a position that if the construction runs a bit over I wont be in dire straights financially (which I am prepared for it to happen).  I would be satisfied to make $15-$20k on my first flip even though I was looking to go down the brrrr method on my first deal.

Are these #'s consistent right now when investors are doing brrrr's. I am mainly focused in B neighborhoods in Ohio, but would be open to other areas as well with similar $50-$95k homes and higher rents.

Thank you again!

Tamara Deering · Answer

@Dustin Bradley

Your numbers are pretty conservative, rightly so, but consistent with a BRRRR deal.  Realistically, you shouldn't have much maintenance or vacancy in your first year because you will have repaired it before you rented and fixed the systems, and you should have a one year lease.  The PM fees are what is really hurting you, I don't have any rental properties but the real estate company I work for has 7 properties and I have taken less than 10 maintenance calls in the last 6 months. The properties are a mix of old houses that have not been rehabbed (4) and newer properties (3).  3 of the calls were plumbing related, 3 were for handyman type services, 1 was hvac and 1 was pest control, mainly I collect rent.  I have heard people talking about Cozy, they seem to like it and it is free.  If you are comfortable handling a rehab at a distance then vetting a handyman and a plumber should be no problem for you.  I am not familiar with the market in Ohio so I don't know how often deals like this come around but my gut instinct is telling me that this is a good deal.  If you can save 5k on the purchase that makes the deal almost a perfect flip.

As for other markets, San Antonio has some deals that fit your numbers but the rehab will probably be higher because properties in that price range need a lot more work.  Rents seem comparable, maybe a little higher in San Antonio, and we have a much lower unemployment rate and a growing population. But it sounds like you've got Ohio figured out so I wouldn't recommend switching horses at this point.

Lucas J Holt · Answer

I live in Central Ohio and I would really like to see this $75k SFH in a Class B neighborhood.  Im even more skeptical of $120 ARV in a Class B neighborhood.  Honestly, those seem to be fairly tough to come by in a Class C neighborhood in Columbus.

Jaron Walling · Answer

@Dustin Bradley My market is so street by street. You can find cash-flow properties on the east side but you have to work some magic and I'm not a magician. I wanted to BRRRR this property but flipping it makes way more sense. It's pretty old, built in 1930, and could be headache as a rental even after a $25K rehab.

Dustin Bradley · Answer

@Lucas J Holt  @Remington Lyman This house is in Parma. Remington if you have any contractors in the area I could use a good one ! Thanks

Dustin Bradley · Answer

@Jaron Walling What are have you been finding similar return in? This property is in Parma Ohio

brrrr #'s not adding up...potential flip?

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