Possible first investment property:
Up for $75,000 3 bed 1 bath (On market 286 days)
Closing Costs $3K
Cash Purchase or Hard money if it works and I can get it
Refi after 6 months for 70% ARV... $70K (30 year at 3.8%)
Loan Fees: $2500
Cap Ex/Repairs: $125
Cash Flow $300
Total invested $5500
Capex and repairs are two different numbers. So, you’re missing expenses.
You’re also not including anything for sewer or other misc expenses
And you don’t seem to be including property Mgmt: even if you on doing it yourself, you need to make sure it covers the cost.
@Justin Seng , I would look at it this way. Given your assumptions for purchase, rehab, ARV, seasoning period, and refi terms, you'll end up getting most of your money out. One thing to keep in mind is debt service during the seasoning period if you use hard money.
Anyway, at this point, it's a typical deal analysis using $100k market value and your $5,500 total invested. Rent is a bit more than the 1% rule, so that's good. Assume 50% expenses excluding debt service, and you're at $625 NOI. Subtract $325 debt service and you're at $3,600 ($300*12) net cash flow annually. Not too bad at all with so little of your own money tied up in equity. That's the power of the BRRRR approach!
Now having said all that, I would double and triple check all your assumptions. For example, if the property has been on the market for 286 days, it could be that there are more than $10k (rehab) reasons why. You might see how the numbers look if you double the rehab. ARV would be another assumption to test, as would rents. But you get the picture.
Best of luck on your first foray into REI, we're rooting for you!
Only $10K on a rehab for a 3BR that you *think* will be worth 100K ARV?
Thanks for the reply. I put cap ex and repairs together but have them separate on my analysis at $62 each. Sewer and trash are included in the taxes for this township. I was going to do property management myself. Wasn't aware that I should add that in.
Chris thanks for the long reply! I'm leaving hard money as an option just because if I do cash it will tie up all my cash for 6 months and I wont be able to jump on any properties if a good deal pops up.
The 286 days had me concerned also but when we walked through with my agent who has about 15 properties we couldn't find any major issues. We agreed on the 10K rehab. I may do one more walk through to double check to rehab number.
I will double check all my numbers. Thanks for all the advice.
My agent who has many properties agreed with the 10K and the ARV is based on similar homes on the street that have recently sold. My thinking is that if I need another 2-3K I can swing it, it will just take some more of my own cash. That cash will get tied up and possibly delay a second deal but I have it if needed.
Chris also have inspection as a contingency so if anything crazy comes up I can back out.
Howdy @Justin Seng
For a BRRRR deal make sure you account for the All-in costs; purchase price, Rehab costs, Closing costs (2 closings), and Holding costs. I did not see Holding costs (Acquisition loan payments would be included, Insurance and utilities during the Rehab period). @Chris Jensen referred to these costs. Obviously if you only use your cash loan payments would not be included. Negative Cash Flow also would be included if the property is not rented as planned.
Your Total cash invested ($5500) is not correct. Or do you mean total remaining in the property after refinancing? What is the $2,500 loan fees? Should be part Closing costs. There are 2 closings (acquisition and Refinance).
Your total cash invested is as follows:
Purchase price (cash) $60K
Rehab costs $10K
Closing costs $5,500
Holding costs ?? (Insurance, utilities, negative cash flow)
Total $75,500 plus
The Refinance is what you are using to get your total cash invested out.
Thanks John. I did mean after refi $5500. I did not however account for the first month holding cost like you mentioned. I am glad I posted this because it forced me to look at the bigger pocket calculators a lot closer.
Loan Fees were closing cost for refi and it was an estimation. I haven't found a good way to figure out closing costs yet. I hear 3-5% is a rule of thumb.
I will learn from my mistakes fast because they accepted my 60K offer. I close in November!
Congrats. Keep focused. Do your due diligence. Have the property inspected so there are no surprises. If you haven’t already...start working on getting pre-approved for the Refinance.
Thanks again John
Great post to read and learn from. Best of luck and congratulations to you @Justin Seng on this one and many more
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