Help analyze this BRRRR deal please

[Eric Garcia]

We're in the process of doing our first BRRRR deal with a HML. They are funding part of the purchase + rehab. Here are the numbers

Purchase Price: $85,000

LTV: 70%

Down Payment: $25,500 (30% down payment)

Rehab Loan: $20,000 (this will be received back in phases, on a draw Total Loan Amount: $79,500

Hard Money Costs:

Interest Only: 11.99%

Points (3%): $2,385

Prepaid Interest (3%) $2,385

Underwriting Fee $2,995

Processing Fee: $995

Lender Attorney Fee: $1,730

Total HML Costs: $10,490

Estimated Cash to Close: Down Pmt + HML Costs = $35,490

However, this didn’t include other transaction costs. After adding in:

Deed Recording

Title Insurance

Mortgage Tax

School Tax Escrow

Attorney Fee

Actual cash to close: ~$43,000

We did not expect an extra $7500 to close. Our attorney thinks the HML's fees are too high, while the HML believes the taxes are too much. We're at a standstill.

Total HML Costs: ~$100,000 (incl. Interest paid during 2-month rehab)

Total Investment: $100,000 + $25,000 down payment = $125,000

Other details:

ARV: $150,000

*As-is Appraisal: $112,000

Time to Rehab: 2 months

Final Remarks:

*The As-is appraisal of $112,000 with a purchase price of $85,000 gives us $27,000 of instant equity in the deal. We think it's a nice buffer to cushion against the cost of doing a BRRRR in today's market.

We're hoping to cash out refinance for $112,500. After paying off the HML, we'll leave about half of our down payment in the deal, which still seems like a good deal. Side note: Interestingly, 75% of the ARV is about the same as the current as-is appraised value.

What do you think about this deal? Where are the red flags in the numbers if this isn’t a good deal? Also, I’m confused by the way the rehab loan works. It seems that we must pay it upfront but then get it back as a draw. Does that mean we add the $20k and then subtract it from our total costs?

Thanks in advance for the help analyzing this deal!

[Nicholas L.]

@Eric Garcia

it's a little thin and I don't think you're including all of your costs.  even with a 2 month rehab, there are holding costs - and then when you refinance you'll get hit with the fees required for the new loan.

say it appraises at 150 and you get 70% out - that's 105 - and then you pay 7-10k in fees.  so you're looking at about 95-98 out... but you've spent 125-130.