First deal - do these #s make sense for BRRR?

8 Replies

Working on our first deal and would love some input. Originally was looking for close to turnkey buy & holds but it's not going to work for our criteria in the market we're focused on. Trying to learn more about BRRR. Came across this bank owned property..brought a reputable contractor out for estimates, and these are the #s we have. I know for flips, 70% of arv minus rehab cost is a good goal as a purchase price, but how about for BRRR? Is this worth it?? An additional concern is having all that cash tied up for 6+ months. Are there lenders who wont make you wait 6mo to refi based on the ARV?

24k purchase price

32k in rehab

ARV = $70k conservatively

Rent after rehab = $800/mo

CoC ROI = 12.5%

Thanks for any input guys.

arv is a little low for what I would like to see, but the numbers look good overall

ask your lender about "delayed financing", it'll remove the seasoning period but it'll also cap you to cashing out only what you put in. Set this up BEFORE you close on the house so you can include rehab costs on the HUD

Buy Rehab Rent Refi is a great strategy to utilize when seeking to give yourself leverage for future investment purchases. You can also L/O or Lease option the home which allow you the cash flow advantages of being a Landlord mix with the Flipping advantage of cashing out once the tenant buyer purchases the home at the end of the lease term (generally between 2-5), also known as Hybrid Investing. I would recommend using BRRR when you want to hold the property a little longer than 6 months. Hope this helps :-0

Originally posted by @Alexander Felice :

arv is a little low for what I would like to see, but the numbers look good overall

ask your lender about "delayed financing", it'll remove the seasoning period but it'll also cap you to cashing out only what you put in. Set this up BEFORE you close on the house so you can include rehab costs on the HUD

I thought delayed financing works off appraisal price, if you don't do it (use loan) then you're limited to purchase price + rehab (% of maybe depending on scope).

Thanks for the input guys.  Still debating pulling the trigger on this.  A little scary taking on that amount of rehab for the first property, though I have some experience with rehab since we did a lot on our own house.   @Toshia Booker-Blakeley   - I did plan to keep this property long term, I was just concerned about having all that $ tied up for possibly 6 months until a cashout refi since I'll have to buy the property in cash and fund the rehab as well.  I'm going to look into delayed financing 

The numbers look good. 

Originally posted by @Matt K. :
Originally posted by @Alexander Felice:

arv is a little low for what I would like to see, but the numbers look good overall

ask your lender about "delayed financing", it'll remove the seasoning period but it'll also cap you to cashing out only what you put in. Set this up BEFORE you close on the house so you can include rehab costs on the HUD

I thought delayed financing works off appraisal price, if you don't do it (use loan) then you're limited to purchase price + rehab (% of maybe depending on scope).

purchase price plus rehab yes, you put the rehab on the HUD at the time of purchase.

Fannie will loan 75%LTV based on appraisal or 100%HUD whichever is lower.

you can't use delayed financing to cash out any value-added equity, but you don't have to leave anything tied up in the deal.  

Originally posted by @Brian Dickerson :

Thanks for the input guys.  Still debating pulling the trigger on this.  A little scary taking on that amount of rehab for the first property, though I have some experience with rehab since we did a lot on our own house.   @Toshia Booker-Blakeley   - I did plan to keep this property long term, I was just concerned about having all that $ tied up for possibly 6 months until a cashout refi since I'll have to buy the property in cash and fund the rehab as well.  I'm going to look into delayed financing 

 https://www.fanniemae.com/content/guide/selling/b2...

straight from the source for delayed financing

Howdy @Brian Dickerson

Sorry I'm late adding to this post.

I have to disagree with the numbers looking good for an ideal BRRRR. Remember, the goal is 100% of your cost back in your pocket. This includes the Purchase price, Rehab cost, and the parts you have not included. That is Holding and Closing costs. The holding costs include loan payments (which you would not have using cash), Insurance and tax payments, utilities and lawn care incurred during the Rehab period up until you have the property fully rented. There are 2 closings to account for. The acquisition closing and the refinance closing. These 2 areas could add an additional $5K to $10K to your All-in costs.

I strive to meet the 70% rule for my All-in costs.  It is not always possible to achieve, but, that is the target.  I do this for 2 reasons.  First, it allows me a buffer encase my Rehab budget goes over or the new appraisal is lower than expected.  Second, I want the flexibility of not having to take the full loan amount if I need better Cash Flow after the refinance.

Your All-in costs total $56K (excluding Holding and Closing costs).  If you are able to use Delayed Financing as @Alexander Felice suggest you should be able to recover that amount.  But not the Holding and Closing costs.

If you use the Cash-out Refinance option (with 6 month seasoning) you will get a loan amount that is 75 - 80% LTV or $52.5K to $56K. Depending on which LTV you get will make a difference in how much cash you can get back. You must also realize the 6 month seasoning does not start the day of closing. It starts when the property is placed in service, ready and available to occupy. How long will the Rehab take 2, 4, 6 months? When would it be considered ready and available? That is when the seasoning starts! This in turn affects your Holding costs and your All-in amount.

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