Thanks for clicking in here :)
This is a sample analysis of a flooded property here in Houston. I want to make sure I'm getting my head around these deals in the right way. I've linked my BRRRR calculator output PDFs here and at the end of the post.
Target property - 4 bd, 2.5 bath, 3300 sq ft
- Purchase: $139k
- Rehab: $45k
- ARV: $235k
- Rent: $1800
Project Cost - 186.5k
- HML Loan 139k
- Rehab 45k
- Points (4) - 5560
- Closing costs (estimated) - 2500
- Loan (30 yrs @5%) - 164.5k
- Closing costs - 1500
- Cash left in deal - 29k
- Pre-refi - -$2200
- Post-refi - $292
CoC - 12.%
- Can someone help me out w/ calculating CoC? I've tried to get myself but I'm getting stuck.
- It looks like I need to account for holding costs like utilities and construction insurance on my own. Does that sound right?
- Does the BRRRR calculator have a way to add additional financing? My HML will loan 70% ARV which could help w/ rehab costs and would leave less money money in the deal.
- I could put more cash into this deal but I have some questions doing that. First, would it be right to think that I could do that analysis by adding a down payment to my HML? Adding extra money would make my CoC go down but I would save on financing costs. Are there other considerations? Would it also result in more cash being left in the deal?
- What ratios, numbers, metrics etc etc etc do you guys tend to focus on? Right now, I'm just tending to look at positive cash flow and 10%+ CoC; what else does can I look at that will help me better understand deals?
- Would you do this deal? By the looks of the numbers, it seems good to me.
- And the best one, what am I not asking about now that I should be? What am I not thinking about that I need to be?
Again, thanks so much for reading through my sample analysis here!
Before answering your specific questions I wanted to point out: You don't have to use the 70% Rule, its just a rule of thumb for flipping, but if you did the max you would offer for this would be $119,500. If you bought it at that price it would be 34% CoC with only about 10k left in the deal. For your specific questions in order:
-The CoC return in this case is one year of the $292/mo cashflow divided by cash left in: (292*12)/29000 = 12%
-Holding costs - yes! Holding costs are usually: property taxes, insurance, utilities, HOA, landscaping, financing costs. So for the 3 month rehab you will pay all those things, and the financing costs will be that 14% HML interest until you refi 6 months later.
-Putting more money down so that you have to borrow less HML will result in less financing costs overall, with everything else being equal will result in less cash left in the deal.
-Up to you on personal criteria, but a perfect BRRRR would result in no money left in the deal or even ending up with more than you started with.
-No I would stick to the 70% rule
Hope that helps!
Derek - thanks so much for the feedback. I'm having trouble finding full 70% deals but they come close sometimes. Thanks for the CoC review, that makes sense.
Thanks so much for your help! Hopefully I've have something under contract in the next month or so!
Howdy @Travis White
You can get up to 80% LTV for a SFR for the Refinance. But if you are projecting 70% in order to improve cash flow then that makes sense.
As far as your Report goes I have a few comments:
Your expense number are very low. I understand you want to make this deal work but do not be overoptimistic with your estimates. It is much better to be overly conservative and be pleasantly surprised with reality rather than under estimating and being sick to your stomach. What if you can not get $1,800 for rent. What then? Your CapEx number is too low. I would not go below 5%. Are you replacing every possible CapEx item on the property during the Rehab? Probably not. I always have the property inspected to determine the current condition and life expectancy of all major systems and appliances. That tells me what needs to be included in the Rehab and what can be deferred. I then can develop a more accurate CapEx reserves requirement and monthly withholding amount. You also did not include Property Management. I strongly recommend you include it even if you are self managing. You time is worth something, right? If you plan to expand your portfolio you may need a PM service in the future. If you do not account for it now it will be hard to add it later.
Now for your questions:
1. Calculating COC will use the Cash Flow after the Refi divided by your remaining cash in the deal.
2. Derek covered Holding costs pretty well. Most new investors miss that and it can cost you dearly.
3. The HML loan should be in the Acquisition section of the calculator.
4. Are you paying cash for the Rehab? Or having it as part of the HML loan? You need to explain this one a little more.
5. The very first thing I want to know is the ARV. Everything depends on this number. What are recently sold comps in Rehabbed condition selling for. In no particular order I want it to meet the 1% and 50% rules. What is current rent? What is Rental Market Rates? Will it meet a minimum of $100 cash flow per unit after Refinancing (I prefer $200 per unit)? Will it produce a minimum of 12% COC. You need to learn the process to determine a preferred Purchase price. I use the ARV x 70% to give me my All-in cost amount. From that number I subtract the Rehab estimate, Holding costs, and Closing costs to arrive at my MAO (Purchase offer). This is disregarding any Asking price. The primary reason I do it this way has to do with the Refinancing. Most provide a loan amount that is 70% - 80% LTV. Typically it is 75%. If I can keep all my costs to 70% then the LTV will not matter ... I win. The second reason is it gives be a buffer encase the Rehab cost go over or the new appraisal comes back lower than my expected ARV. Granted I can not get 100% of my cash out every time. But I stand a better chance trying to meet this requirement.
6. I would not do this deal based on the numbers you provided. Leaving way too much cash (more than you show) in the deal.
Hope this helps.
Hey John - thanks so much for your comments.
Let me jump in. For expenses, I'm not intentionally keeping them low and a big part of why I'm posting here is to find holes in my analysis just like this. So, thanks for pointing that out!
funnily enough, while trying to find out how the calculator arrives at its holding costs number, I found this:
"I do not use the BP calculator. It is a good tool but it does not include a key item you need to account for. That is Holding Costs!"
so, the calculator lists holding costs for this deal at $5510 and I'm trying to figure out how the calculator comes to that number and if that number is included in my all in amount. I can't find any posts that discuss it directly - I'll start one and see if I can get to the bottom of it.
Holding will include - insurance, utilities, HML payments, HOA - anything else I need to be thinking about?
Capex - 5% should be minimum? Maintenance = 10% ? More, less?
That's great advice about including property management. I do (hopefully) plan on expanding to more properties in the future and it would be a shame to have a deal go from black to red based on that. Hopefully I can find deals that are a little juicier than that though.
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