Help with deal analysis?

11 Replies

Hi all,

I am hoping somebody can help me. I have looked at a number of properties over the past couple months on and off the MLS and have not found one that fits my buying criteria until now. Could somebody help me in analyzing this deal, is this a good deal?

As a preface, this will potentially be my first Real estate deal :-)

I am looking to do the BRRRR strategy.

Property is as follows.

3 beds 2 baths 1,120 sqft

sale price: $62,000

4 comps range from $60-$87 within a 1/2 mile radius.

Rent Estimates within a 2.76-mile radius, courtesy of Rentometer: Average $893 Median $895.

Purchase Closing Costs:$1,500.00
Estimated Repairs:$5,000.00
Total Project Cost:$68,500.00
After Repair Value:$75,000.00
Down Payment:$15,500.00
Loan Amount:$46,500.00
Loan Points:$465.00
Loan Fees:
Amortized Over:25 years
Loan Interest Rate:4.500%
Monthly P&I:$258.46

Total Cash Needed

By Borrower:$22,465.00

Monthly Income:
$895.00
Monthly Expenses:
$718.56
Monthly Cashflow:
$176.44
Pro Forma Cap:
6.96%
NOI:
$5,218.80
Total Cash Needed:
$22,465.00
Cash on Cash ROI:
9.42%
Purchase Cap Rate:
8.42%

Thanks in advance for your help.
As you have it structured now, it doesn't work as a BRRRR. With an ARV of $75k and being all in at $68k, you won't be able to refinance enough to get your money back so you will be left with at least $12k of your money in the property. Also, traditionally, banks won't lend for rehab, so how are you planning on purchasing the property? It looks like you are using traditional financing numbers. You also need to account for vacancy and repairs by reserving money every month. On this specific property, probably about $250 per month. As you have it now, it's not a BRRRR candidate, in the traditional sense.

If you're looking to do a BRRRRRR, you need to think about how much cash you can get out with a refinance after you have it rehabbed and rented.  

So if you can get out 75%, you're looking at $56k out, assuming it appraises for $75K.  that means you'll still be out of pocket $9,100 after you refinance.  So you'd want to run your rental numbers on the $9,100 for your cash on cash returns.  

So one of the things you want to really look at here is your purchase price.  If they're not willing to go down any more, you can probably get a lot higher return on your money somewhere else

Hey Guy,

Great job at finding a potential deal. Base on the numbers in this post, did you run a rental or BRRRR calculator on this deal? It looks like you did a rental but I'm not getting the same numbers. Check out how I ran the numbers Deal Calculator. Also, this does not include you paying for any utilities.  Also, are you using traditional or hard money on this deal?

With these %:

vacancy: 5 = $44.75

Repairs and Maintenance: 5 = $44.75

Capital Expenditures: 5 = $44.75

Property Management Fees: 10 = $89.50


For this to be a deal you would have to Buy and Hold plus put into the deal the down payment and rehab cost.  Or you could partner up with someone and have them come with the down payment and rehab cost.  Then split the cash flow of 300. When I ran the numbers it cash flow at 313 or more if you grind and do the property management yourself. 

Correction:

When I ran the numbers it cash flow at 313 or more if you grind and do the property management yourself you would cash flow 402.5.

@Jason DiClemente thanks for the help. I did plan on using a traditional bank, I have a local bank that I have been talking to they will lend for investment properties and also rehabs, 25% down for both purchase and rehab as long as a licensed contractor does estimate on rehab. I have the money for down payment and rehab costs.  

I thought I did account for vacancy and repairs - Monthly Rent is ~ $895 and my expenses (vacancy, repair, cap ex. prop management etc...) ~$718 giving me a monthly cash flow of ~$177 is there something else I should be accounting for, I did it via the Bigger pockets calculator? 

I think my ARV might also be a little low the individual I am buying it from is a wholesaler and he estimated the ARV at $95k I don't think it would be worth that after rehab, but I was being somewhat conservative at $75k after some more calculations it could be worth $85k after rehab. thanks for the help.

@Mark Wood I have made a correction to my ARV I believe it could be as much as $85k after rehab, this would put me in a better place for a refi. What do you mean "run your rental numbers on the $9100 for cash on cash returns"? The price is the asking price, I am hoping there is room for negotiating the price lower.

@Jovan Hardwick thanks for your help and running the numbers for me. I think I might have used the rental calculator to run my deal originally. I will use my own money and traditional bank money to finance the deal. I have accounted for the property management but will probably do it myself for while, as a learning experience, then hand it off to a property management company. I have reevaluated the ARV to $85k If I buy and hold on these numbers does this still make sense?

Thanks for all your great advice.

Hey Guy,

At 85K (if you are sure you can get that) will be perfect because at 80% LTV your all in amount is 68,000. I say this because since the sale price is 62,000 for purchase.

If you could offer 50K on the initial offer and in negotiation settle at around the magic number of $55,500 (which would be the home run number).  

At $55,500 you could offer to pay all closing if closing is $1500.  So 55,500 + 1500 (Costing Cost) + 5000 (Estimated Repairs P.S. make sure this number is strong and on point) = 62,000 Total Project cost.

If you Refi the property 85K @ 80% you could pull out 8,000 at closing including your down payment money to do another deal.  But, make sure if they're any seasoning or time frame you have to wait to Refi.

@Guy Roberts I didn't see those expenses broken down but if they are there then perfect. Cash flow is a little light for me at $175 but we may have different comfort levels. And is that pre-refinance Cash flow or post? If it is pre-refinance, your expenses are going to increase because the loan will be larger. At this price it's a really tight deal.

Hey @Jason DiClemente those figures will be pre-refinance Cash Flow. I am hoping that the seller will come down in price, if it stays at $62 then I will pass, if I can get him down to $55 then I will be comfortable with the numbers.

@Guy Roberts

What I meant for Cash on cash returns is the big picture. With the ARV where it was ($75K) and a 75% cash out after the rehab you'd get back some of the money but still have $9100 out of your pocket for cash in the deal. So I was thinking you could calculate the CCR on the cash you have in the game after the refinance.

Now if it appraised for $85K, it's a whole different picture. But, make sure you're being honest with yourself and not letting a wishful ARV make you take a wrong turn. I've done that in the past and it slowed me down tying up my capital for a while.

If you can pull all of your money out after refinance, you're talking an infinite CCR because you're dividing by zero. So you'd be playing with the casino's money.

It looks like you'd have $1650 in the game after a refinance with an ARV of $85K. That's a lot more solid. (even better if they took $60k for a purchase price!)

Thanks for all your help guy's, it seems I was too slow on the offer, I offered $50k yesterday but he sold it for his asking price of $62 to somebody else today. 

anyways, back to the drawing board...  seems like you have to be pretty quick on the draw when it comes to buying property in my area, this is the second time that has happened to me in a week.

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