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I can't get my BRRRR analysis to work although when I run the standard rental property calculator I get decent cash flow. Is the cost to rent ratio just too high? What am I missing here?
According to the agent this property will not qualify for standard financing so it will need to be purchase with cash or hard money.
Yep assuming the property is here locally that's exactly what the problem is.
Price to rent ratios are so skewed they do not allow BRRRR to work well here.
Hard to find a property where you can force enough immediate appreciation with rehab that also cash flows well.
Assuming the ARV of $306K is correct, the purchase price and huge expected repair bill of $65K don't make this work as a BRRR deal. Using the basic 70% rule (70% of ARV, minus repairs (and closing)) I come to a max offer of $145,200. This number simply might not be acceptable to the seller. Truly good BRRRs and Flix and Flip deals aren't terribly easy to find. I'm dealing with this issue myself! ;-)
@Nicole A. - Thanks for the input...
I agree the max offer should be in the $145,000 range...and you're also correct that the seller most likely wouldn't accept because there are 10 people willing to pay more...
However even if I paid $145,000 put in $65,000 in rehab costs I'm all in at $200,000. If I REFI at $200,000 to get my money back my cashflow is horrible. The lower purchase price helps me REFI more money out of the deal and increase my COC return but doesn't affect the cash flow after REFI.... If I'm understanding this correctly.
That's why I think it must be the price to rent to ratio just isn't great in my area...
Have you plugged the same property in the flip calculator? Seems like there may be some meat on the bone there if you can get the purchase price down? I still believe that in this business you are always making the money on the buy....
Howdy @Jim Hiler
What type of property is this? SFR or Multi?
Is $2,800 the Rental Market average? Is it the current rent? Why is it not changing after Rehab?
Did you include Holding costs in with the Rehab estimate? These include loan payments, tax, insurance, utilities, etc ... incurred during the Rehab phase up until the property is fully rented.
Jim you will find Cash Flow amounts are usually lower using the BRRRR strategy compared with normal Buy and Hold deals. That is one trade off that occurs with getting infinite CCR. You can make adjustments by not pulling out 100% of your cash to the point you have an acceptable Cash Flow.
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