Investor · Royersford, PA · Member since 2015 · 64 posts · 21 votes
4y
@Nestor Grajeda Jr Just my opinion, I think you're starting off on the wrong foot with having negative cashflow. The idea of BRRRR method is that you're finding a deal that cash flows positive after repairs with the intent of cash-out refinance to take practically all of your money back out and still cashflow positive. you don't want an "alligator" something that takes money out of your pocket in order to have the property (that's just another liability, not an asset).
Example:
Purchase Price: $60K
Rehab/Repair: $30K
Total Cost: $90K
Rental: $950
Expenses (50%): $475
Net Cash Flow: $475
ARV: $135,000
Refinance (70% of $135k): $94,500 cash to you.
30yr Mortgage (3.5% interest) on 94,500= $425/month
This is where it gets tricky because the expenses. Either the debt service is included in your expenses at 50% or the debt service is after expenses. But either way you have your money back and property will cash flow. Albeit only $50/mo. if you minus $425 mortgage from $475 in net cash flow. Then go find another property with similar opportunity. Keep in mind there are a lot of assumptions such as you're pay cash for the property and the rehab and also understand that this is considered a home run deal in my opinion, but hopefully you get the gist. Again, this is just my opinion.
Investor · Miami, FL · Member since 2020 · 80 posts · 66 votes
4y
Not a good deal. You are missing two criteria that generally work as a quick check for a great BRRR deal:
1. All in 70-80% of ARV, which in this case you are 92%..
2. Rent should be about 1% of the new loan, which you are about 0.7%
This would be a hard pass for me personally, and I'm not sure how you're getting an infinite CoC return on this one. Perhaps your down payment is erroneous?
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
Having trouble following the model honestly, but I can't see anything appealing here. Surplus? Did you reverse the acquisition and refi numbers by any chance? You have an ARV of $450,000 but are planning to borrow $580,000 on refi?
Investor · Royersford, PA · Member since 2015 · 64 posts · 21 votes
4y
@Nestor Grajeda Jr Just my opinion, I think you're starting off on the wrong foot with having negative cashflow. The idea of BRRRR method is that you're finding a deal that cash flows positive after repairs with the intent of cash-out refinance to take practically all of your money back out and still cashflow positive. you don't want an "alligator" something that takes money out of your pocket in order to have the property (that's just another liability, not an asset).
Example:
Purchase Price: $60K
Rehab/Repair: $30K
Total Cost: $90K
Rental: $950
Expenses (50%): $475
Net Cash Flow: $475
ARV: $135,000
Refinance (70% of $135k): $94,500 cash to you.
30yr Mortgage (3.5% interest) on 94,500= $425/month
This is where it gets tricky because the expenses. Either the debt service is included in your expenses at 50% or the debt service is after expenses. But either way you have your money back and property will cash flow. Albeit only $50/mo. if you minus $425 mortgage from $475 in net cash flow. Then go find another property with similar opportunity. Keep in mind there are a lot of assumptions such as you're pay cash for the property and the rehab and also understand that this is considered a home run deal in my opinion, but hopefully you get the gist. Again, this is just my opinion.
New to Real Estate · Los Angeles, CA · Member since 2018 · 8 posts · 4 votes
4y
@shawn bhatti
thanks for everyone's feedback. i think your right, i didnt add in my downpayment of 20%, now my first year CoC is -18.92%. ok i understand the 70-80% all in now. i wasn't working that in the 70%. thank you!
thanks for your great example. the report said cashflow is $101 mo/ and i just adjusted my downpayment,(i did'nt include in original post report. says i would even profit 10k if sold in the first year. COC=1.2% and another thing throwing me off is total cost of project: is 413k, but if arv is 450k 70% of that is 315k so i would be 98k in negative correct?(i have to lock up 98k in this deal) thanks in advance.
Investor · Royersford, PA · Member since 2015 · 64 posts · 21 votes
4y
@Nestor Grajeda Jrthanks for your great example. the report said cashflow is $101 mo/ and i just adjusted my downpayment,(i did'nt include in original post report. says i would even profit 10k if sold in the first year. COC=1.2% and another thing throwing me off is total cost of project: is 413k, but if arv is 450k 70% of that is 315k so i would be 98k in negative correct?(i have to lock up 98k in this deal) thanks in advance.
It's not $98K in the whole because that money is locked up in the property. But technically, you would because you don't have the $98k to go use for another property. Overall, BRRRR isn't good strategy for that opportunity.