Am I missing something or is this as good as I think?

Question

Hey everyone, I'm new to this so when I ran the numbers with the BRRRR calculator I thought, I have to be crazy. Can someone help me, am I missing something here or should I go for this immediately? (note, my "repair est" I'm not concerned with it be slightly off I've budgeted for 10k surprise, and the "ARV" is based on my own comps, not my realtors yet)

Purchase: 54k

Closing: 2.5k

Repairs: 12k

Proj Cost: 68.5k

ARV: 90k

2 months to rehab, 6 to refi

Purchased w/ traditional 30yr

Down Payment: $10,800.00

Loan Amount: $43,200.00

Loan Points/Fees: $0.00

Amortized Over: 30 years

Loan Interest Rate: 6.13%

Monthly P&I: $262.49

Total Cash Needed At Purchase: $25,300.00

Refinance: W/ Traditional 30yr

Loan Amount: $67,500.00

Loan Fees: $1,000.00

Amortized Over: 30 years

Loan Interest Rate: 6.13%

Monthly P&I: $410.14

Total Cash Invested: $1,744.84

Expenses:

Vacancy $91.00 (7%)

Repairs $65.00 (5%)

CapEx $65.00 (5%)

Water & Sewer $30.00 (2%)

Garbage $14.00 (1%)

Insurance $215.00 (17%)

Management $130.00 (10%)

P&I $410.14 (32%)

Property Taxes $58.33 (4%)

Total $1,078.47 (83%)

Monthly Income:                    Monthly Expenses:               Monthly Cash Flow:                    Pro Forma Cap Rate:

$1,300.00                                     $931 / $1,078                          $369 / $222                                       8.42%

NOI                                          Total Cash Needed                   Cash on Cash ROI                        Purchase Cap Rate

$7,580.00                                      $25,300.00                            17.5% / 152.4%                                   14.04%

So am I missing something here? On a side note if someone wants to partner with me, since this is my 1st potential deal I'd gladly welcome a knowledgeable partner.

John Leavelle · Answer

Howdy @Donald Shaver

Found your post.  Here's my take.  Overall deal looks good.  Just need to find tune some things.

Both Acquisition and Refinance loans appear to be from same Lender.  Is that the case?  Have you got that ok'd?  Is this a cash out Refi?  It looks like it even though you do not state that.  If it is this would be considered a BRRRR strategy.

You need to account for ALL costs associated with this type deal.  Purchase Price, Rehab costs, Holding costs, and Closing costs (2 closings).  I call these my All-in Cost Basis.  These are the costs I want covered with the Cash-Out refinance loan.  You are using a 75% LTV ($67,500).  Ideally you want the All-in Cost Basis to be equal to or less than this amount so you get 100% of your cash back.  You left some of these costs out of your analysis.

Holding costs are expenses you incur during the Rehab period and until you have the property fully rented.  This will include (but not limited to) mortgage payments, utilities bills, and insurance.  You estimate 2 months for Rehab.  I would use 3 months as a minimum to be safe.  That equals $1,564.77 (P&I $787.47, Utilities $132, Insurance $430) based on your numbers.  This does not include electricity.

Closing Costs seem low as @Kyle Eckert mentioned.  I agree with $5,000 for the acquisition closing.  Are you sure $1,000 fee for the Refinance closing is all that is required?

Your deal looks like this to me.

Purchase Price $54,000

Rehab Estimate $12,000

Holding Costs $1,500 plus

Closing Costs $6,000 plus

Total Aii-in Cost Basis = $73,500

$73,500 - $67,500 (Refi loan) = $6,000 equity overage + $22,500 (25% equity) = $31,500 total equity remaining in property.

For the cash flow analysis I would increase the CapEx to $130 until you can have the property inspected to determine the actual condition and life expectancy of all major components and appliances.  From there you can develop a more accurate CapEx reserves requirement.  Is there any common area electric usage that you may be responsible for?  Do not forget other miscellaneous expenses that add up.  Lawn care/snow removal, legal, accounting, advertising, pest management, etc.

As I said it still looks like a good deal.  You just need fine tuning.

Brent Coombs · Answer

@Donald Shaver, Q. #1: Who's lending out amounts less than $50k? Q. #2: Are you sure about being able to get $1,300/m for a home there that's only worth $90k? Q. #3: Are you sure of being able to get an investment loan payable over 30 years? Just askin'...

Donald S. · Answer

@john (can't seem to tag people from my phone), thanks for the analysis. Yes it is a BRRRR, I thought I mentioned that, maybe not. Both endsof the deal are from the same lender, he said they'd prefer to do both actually. As for the refi closing I'm going off of what an old neighbor of mine said he charged when he did refi's but I'll ask my realtor what is a better estimate.

There is no common area electricity once the tenants are there they'll be able to cover their own bill individually. I'll rerun some numbers tonight and see if I still come up with good totals.

Thanks again!

James Canoy · Answer

I’m relying a lot on my realtor as I’m wet behind the ears. His numbers are always higher than mine as he seems to base things off other listings and not off recently sold or even in the same neighborhood. But this has resulted in my passing on several deals which may have been good if he were correct.

James Canoy · Answer

Can you trust the realtor for the ARV calc?

Matt Conrad · Answer

Typically figure about 55 per unit for sewer and water. And about 14 per unit for trash. I always do 8-10% for repairs. And if this is a 2 family for 50 grand, that would make me nervous about the area. Make sure it doesnt need more work than you think. Is this an MLS property?

Matt Conrad · Answer

Typically figure about 55 per unit for sewer and water. And about 14 per unit for trash. I always do 8-10% for repairs. And if this is a 2 family for 50 grand, that would make me nervous about the area. Make sure it doesnt need more work than you think.

Donald S. · Answer

It is in south city, what would you suggest for the amounts?

Am I missing something or is this as good as I think?

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