Feedback on BRRRR analysis

7 Replies

Hello all, 

I am currently looking into a BRRRR rental.

Single family home in Houston (Katy area) built in 1978. Flooded during Harvey, first time flood, professionally remediated. 

3bed/2bath/2 car garage

1,635 sq/ft

Asking price: $95,000

Estimated rehab: $35,000

ARV: $145,000

Cash purchase. 

-----2 reports attached. 

Report #1: Shows a negative cash flow of $44.18 (if property is purchased at the asking price of $95,000).

https://bp-v-newproduction.s3.amazonaws.com/upload...

Report #2: Shows a positive cash flow of $80.43 (if property is purchased at negotiated price of $71,250).

https://www.biggerpockets.com/calculators/shared/847958/505311ff-7b4b-44c3-a260-0d78cc2c2163

Both reports have Property Management included for future protection. 

In order to pull all my cash out of this deal with a 75% LTV refinance, the maximum I could purchase this property for would be $71,250. Assuming it does appraise at $145,000. I did take into consideration that the home was flooded and calculated my numbers with a 10% hit on ARV as opposed to pre-flood comps. In other words, the ARV pre-flood would have been ~$160,000.

I am not too concerned about cash flow, only to stay positive. My goal is to focus on loan pay down and not so much cash flow income as I already have a stable income. 

If you guys can provide some feedback I would appreciate it. This would be my first rental property using the BRRRR strategy so any information would be helpful. Thanks in advance!

It looks like you've done a pretty good analysis, the only thing I would really want to see are the comps you used to get the ARV and rent price and how confident you are in them. But I would definitely try to get in around 75%. I don't like having properties that don't cash flow and at asking or even close to it, you're equity margin is really, really thin.

How confident are you in the 35k rehab estimate? The repairs look extensive. I know Bear Creek Village and Houston rehab costs and It looks like a lot more work, especially with the brick repair in the back.

Thanks Andrew, I am going to view the property today and will look further into rents and accurate ARVs.

I am pretty confident in the repairs. I’m currently rehabbing a house in Fleetwood (memorial and highway 6). The rehab on that is about $30/ft. And those are high end homes with ARVs above $400k.

Since this particular property will be a rental I won’t spend as much on material so I’m estimating $22/ft.

@Khizar Hanif You can find much better deals than this in Houston, the equity is too slim and Houston is known for excellent cash flow. To me Cash Flow is the best part of real estate otherwise you're betting on appreciation and debt paydown, there are better investments than real estate if you don't want cash flow. I would also not buy cash either as you will have that money in the deal earning little to nothing for 6 months while it's seasoned or you could do delayed financing and get the purchase price back almost immediately. To me Hard money purchases are the way to go so that you have less money in the deal. 

@Khizar Hanif my realtor said homes that flooded only during Harvey are closer to a 15% hit. Not that its a huge jump from 10% to 15% but I would go as conservative as possible within a range that makes sense. 

Do you have a GC or are you estimating costs yourself? 

Do you have a realtor or finding comps and rents yourself?

Also how did you come up with the ARV?

I think your deal looks decent but as others said earlier cash flow is the goal in real estate investing. Everything else is a perk if/when it pays out.

I plan on buying my first BRRRR in the Katy area as well which is where I actually reside. I have a realtor (who invests in real estate and has for years), a GC, property management company I have been in touch with and a few wholesalers. Next is lending which I plan on calling some today that I have been referred to through other investors on BP.

If you ever wanna grab lunch or coffee let me know. I work in the energy corridor so I'm always on this side of town.

@Khizar Hanif

No offense I am just going to share how my mind works so here goes:

Why do all that work for something that barely cash flows? I understand you make a good living, but if you are truly treating this like a business then in my opinion this is a bad move. Just my 2 cents.

All the best to you

Jorge

@David Olson I agree with your realtor, the range is between 8-15% from what I have seen. A huge factor that plays a part in determining that "hit" in value is how quickly the neighborhood seems to be bouncing back. My current flip is in Fleetwood, which is sprawling with investors and homes are starting to appear on the market fairly quickly. So far it seems that my house will take a 8-10% hit. 

The deal I posted above is in a neighborhood thats moving very slow, so it would more than likely take a 15% hit. I passed on the deal. Thanks for all your input. 

I have a GC and realtors working with me as well. 

Lets link up sometime. Ill PM you my contact and we can connect on the phone. Would definitely like to put our minds together. 

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