Rental Property Investor · Fernandina, FL · Member since 2018 · 66 posts · 18 votes
Looking at a duplex listed for $106k to BRRRR. We think it could maybe appraise around $130k ARV. It's in a B neighborhood. They have 90's oak cabinets with off-white Formica countertops. One thought is we don't want to paint because of the wear & tear of painting & upkeep with renters. (Repainting May Be required every time someone moves out). BUT when looking to BRRRR does painting them give a GREAT return on investment? We don't want to overdo this duplex for the area & I really don't want to repaint them every few years. Plus if we paint cabinets then we may need to replace the counters since they have wear & tear. THOUGHTS?
I've done both paint and restaining, depends on the house. Both have held up well so far, though I'm sure the white ones will stain over time and I'll have to repaint in the future, which is fine with me.
Here's some before and afters...both houses are in B neighborhoods. I spent about $600 on paint, new hardware, backsplash tile and a sheet of new Formica for the counter for this one...
And this is my cheapo house I bought for $38K, I sanded and restained the cabinets with gel stain and two coats of poly. New hardware, backsplash and sheet of granite-looking Formica - I spent about $275 here. If the floors and cabinets look splotchy and weird, it's because I had just mopped and wiped everything down. And my phone takes the worst pictures, lol.
Looking at a duplex listed for $106k to BRRRR. We think it could maybe appraise around $130k ARV.
Those numbers don't work well for a BRRRR. Let's say your numbers hold and you somehow get the reno done for only $4k.
Most lenders I talk to will only do a cash out refi for up to 75% LTV but let's say you could get one to do 80% LTV.
$130,000 * 80% = $104,000 max loan. You are still stuck with all of your money in the project and you would have to add money to cover the remainder of the purchase, pre-paids, closing costs (x2), etc.
More likely scenario is you get 75% LTV so $130,000 * 75% = $97,500 loan. You would have to be into the property for $12,500 plus closing costs, etc. Maybe the property will have a good rental return to make it a winning deal but it doesn't excite me.
Ultimately this hinges on your ARV. Doesn't sound like you are very confident on that number right now.
John basically nailed it. Purchase price: $106k, closing costs: $3k (3%), down $21.2k (20%), rehab $5k. Total cash: $29k Even if you do a 80% LTV HELOC (no closing costs), you'd only be able to pull out $19k (80% of 130k). If you choose to refi, subtract another $3k or so off for closing costs. How much would you be able to rent it out for?
@Valerie Smith if you have no money the only way I see this working is if you get a private lender who is willing to leave money in the deal. Other way would be to get the price down so your after renovation cost is closer to $95k.
You could try to get personal loans but would have to weight the high interest rate in your cash flow calculations.
If you're painting formica cabinets, you'll have to use a very good primer to make that paint stick. And yes, be prepared to paint the cabinets frequently After a few tenants, those cabinets will probably have to be replaced.
Cabinets are very challenging even as a pro painter. They are the MOST challenging thing we face in residential painting as a matter of fact. Many pitfalls if you are not careful... like I hope you didn't remove the doors and hinges thinking you can just replace it all with updated hardware. Are the old screw holes going to match up with the new hinges? When they don't (and they won't), are you going to have to repair the original holes? Are all the bends and geometry of your new hinges a PERFECT match with the original hinges? On both sides? Highly unlikely.
I would just plan on reusing the original hardware. You can clean them up and spray paint them.
This is only the beginning of a long and tedious journey if you want any type of lasting quality or even just to make them look reasonably good.
Painting the cabinets may not, OK is not easy, but is easier than trying to sand them down and stain them. I like the idea to clean up and re use hardware, at least hinges. Don't paint the countertops. I only say this because I had an apartment once where they had done this.
@Victor S. $725-750 each unit for a total of $1450-1500 monthly rent.
Looks like a good cash-flowing property, but not BRRRR at this price level. Think about wholesaling it to somebody with deeper pockets if your ARV/repairs/cashflow assumptions are correct.
@Valerie Smith we just finished painting our cabinets. They were 80s ugly stained dark wood cabinets, we did a light light sand on them, cleaned them really well, then primed and painted white. It looks great and is very durable. I’ve tried chipping or scratching spots just to see if this will actually hold up and it seems like it will. New hardware makes a world of difference, definitely worth your investment! Best of luck
@Valerie Smith As others have mentioned I would definitely paint the cabinets in this situation for a couple reasons:
1. When done properly the paint will look good
2. If you put new rental grade cabinets in it wouldn't raise the appraisal amount anyway and might not look that much better if the paint job on the cabinets is quality
3. For a $100-$110k property it isn't worth making the property any nicer than it has to be in order to get your target rent. A clean look with painted cabinets, new hardware/hinges will do the trick here.
I'm guessing a little over two weeks? I was bouncing back and forth between the kitchen and one of the bathrooms as paint dried/tile set. Making the doors and cutting the cabinets apart to fit a modern stove took the longest. That grimy avocado green drop-in thing was a real beauty, though. lol
@Valerie Smith - you asked about counter paint. I had bright pink laminate countertops in decent condition with solid wood cabinets I didn’t want to replace, so I had it painted light-medium grey with 2 coats of rustoleum countertop paint. The paint smells much worse than normal paint. Abrasions take off the paint without much issue, so I already have pink spots and cuts a few months later where my tenants wanted to drag or cut something on the counter. Overall though, the kitchen LOOKS better but closer inspection reveals a lot of defects. I guess you could redo it between tenants. My next plan is to get cheap granite after I figure out my base cabinet situation. (It’s rented at my target price so far so there’s not a lot of incentive to spend money on the kitchen unnecessarily.)
@Mark S. Oh and this property is not located here. The prices here are extremely high here and the rents struggle to keep up with the price. Rents are high here too but the cash flow is often not there.
One more..what do you mean by “the private lender leaving money in the deal”?
Not sure how that works
You mentioned you would be using a private lender to help purchase the property because you don't have money. By this I assume you mention you are using a private lender to come up with your down payment also.
Because your numbers do not work for a BRRRR deal you will have to come up with money on your own or you will need to negotiate with your private lender how they can keep money in the deal. This may be a hard/impossible feat if you are planning to hold for a long time.
This property may make sense as a rental if your rents are correct and if you had money to purchase it but this doesn't look like a good BRRR property. There is a calculator under Tools, I haven't used it but this may be helpful.
I don't know many of the details but if your rehab was only $5k you will need around $23k at purchase to cover the down payment and rehab (maybe more). They if you refi out at 75% LTV at your $130k ARV you will need to leave $18-$20k in the deal. So in other words, you would need $18k-$20k of your own money to make the deal work. If you don't have that you would need to find a long-term lender who is willing to lend that. My calculator was an example, you can run it with your own numbers.