Need help in analyzing BRRRR deal

[Boddupalli Sai Praneeth]

I'm considering purchasing a single-family home 3 bed,1 bath kitchen in the main floor and 1 bed, 1 bath in basement built in 1957, listed for $330,000. The city-assessed value is $310,000 (as of 2023). The house is in a well-connected area of a large metropolitan city—nearest bus stop is within 200 meters, and amenities like Dollarama, gas station, and restaurants are within 500 meters.

The interior appears well-maintained, but there are several issues and planned upgrades:

Existing Issues:

1. Boiler needs replacement (estimated cost: $5,000)

2. Roof shingles need to be redone (estimated cost: $10,000)

3. Currently has baseboard heating – considering replacing with forced air (central heating + cooling), but note that no vents are currently in place (estimated cost: $18,000)

4. Basement is finished, but I plan to add a second kitchen and one bedroom to make it a rental unit (estimated cost: $10,000)

5. Need to replace stove and dishwasher, and furnish the second kitchen with all appliances (estimated cost: $7,000)

Potential Income:

• Estimated rental income from basement suite: $2,400/month

The following numbers that can work for me.

• Total cost including all the renovations $360,000

• Interest Rate: 3.99%

• Down Payment: 5%

Expenses:

• Mortgage: $1693

• Property tax: $ 387

• Garbage fee: $22

• Insurance: $100

• Utilities (not paid by tenant): $200

• Maintenance, CapEx and vacancy (20%): 440

• Total expenses: $2842

• Total income: $2400

Cashflow: (I am no longer paying $1200 in rent, should I be happy that I am actually saving $758)

When I move out I can charge $1200 for the whole basement and then my cashflow would be $158.

I'm looking for expert input on the following: As a beginner with no experience at all.

• Estimated renovation and upgrade costs based on current market rates in large metropolitan areas

• Is switching to forced air worth the investment, considering ductwork needs to be installed?

• Is the overall investment viable considering the purchase price and renovation costs?

• Any suggestions or red flags I may have missed?

Appreciate any insights, especially from those with experience in similar projects or markets.

[Arman Ahmed]

@Boddupalli Sai Praneeth

You've got some potentially underestimated renovation costs.
Boiler: $5,000 might be low. Average replacement cost is around $5,900 but can be higher depending on the type and installation complexity.
Roof: $10,000 for roof shingles seems plausible, as typical ranges are $6,000-$9,000 for standard roofs.
Forced Air (Central Heating & Cooling with new ductwork): Your $18,000 estimate might be insufficient. Installing central AC typically costs $4,000-$12,000, and adding new ductwork can cost between $2,100 and $4,000 extra. In older homes requiring significant demo and repair for duct installation, costs could be even higher.
Basement Suite Conversion: $10,000 for a new kitchen and bedroom is likely an underestimate, with basic kitchenette installation averaging $15,750, and adding a bedroom can add significantly more.
Appliances: $7,000 might be acceptable for basic appliances, but higher-end options will push the cost up.
Important Considerations:
Higher Down Payment & Interest: Be aware that investment properties typically require a higher down payment (e.g., 20-25%), and interest rates are often higher than for primary residences.
Cash Flow vs. Opportunity Cost: While saving rent is a bonus, focus on the overall profitability of the basement suite (income minus expenses).
Market Fluctuations: Research local rental rates thoroughly to ensure the estimated $2,400/month is realistic for a basement suite in that location. Consider the potential for cost overruns during renovations and delays in finding tenants.
Seasoning Period: You'll likely need to wait at least six months after the purchase before refinancing the property.
Given the potential cost increases, get detailed quotes from contractors and consider a larger contingency fund. Consulting with a seasoned real estate investor or financial advisor specializing in investment properties can be valuable before committing