[BRRRR Calc Review] Help me analyze this deal

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Hi All - I am practicing analyzing some deal for a BRRRR, and believe I have come across a good one. I am a bit confused about the Initial Rental Period portion of the report. Any feedback or constructive criticism about this specific portion of the report as a whole is greatly appreciated!

@Melaine Mudukuti , question 1: if you have $94k cash, why would you need to go with a HML at the start? Question 2: Are you sure that for a pure investment, you'd be able to refi into a 30 yr 4.5% fixed Loan? (Seems overly optimistic to me) ie . Check with Lenders, even now!

Other than that, my usual question is: What's the normal Rent-to-Value per month percentage around there? (Rule of thumb suggests that falling below 1% gross return per month makes it increasingly hard to cash flow positively on average, when borrowing to the max).

A similar question: Are you getting a bargain* (compared to sold comps)?

* [Spending $24k on rehab, to increase value by ~$40k is a good theoretical start. More?]

Welcome to BP. Thanks for sharing. All the best...

Thanks so much for your response @Brent Coombs

To answer question one - I was thinking I would only need some of that cash upfront and the remaining portion would be holding costs that would be paid monthly? I'm still working my way through understanding the report and what I am looking at exactly. For question two, I got pre-approved about 5 months ago for that loan - so I was thinking (all things consistent) I would be able to still qualify for it? 

Thank you also for mentioning the RTV. I had no clue about that and after doing some research, it looks like they are falling around .85 give or take. So in essence, I would rethink this deal. 

With that being said would you think it makes more sense to fix and flip? 

Originally posted by @Melaine Mudukuti :

Thanks so much for your response @Brent Coombs ! 

To answer question one - I was thinking I would only need some of that cash upfront and the remaining portion would be holding costs that would be paid monthly? I'm still working my way through understanding the report and what I am looking at exactly. For question two, I got pre-approved about 5 months ago for that loan - so I was thinking (all things consistent) I would be able to still qualify for it? 

Thank you also for mentioning the RTV. I had no clue about that and after doing some research, it looks like they are falling around .85 give or take. So in essence, I would rethink this deal. 

With that being said would you think it makes more sense to fix and flip? 

In general, I reckon flipping should be left to professional flippers. Is that your aspiration?...

@Brent Coombs yes it is - I understand - I guess I'm just trying to get a feel for when I see certain things or patterns when analyzing, what makes more sense to be done to the property. Not necessarily actually pulling the trigger on this particular property! But yes, I aspire to fix and flip as well as BRRRR.

Howdy @Melaine Mudukuti

First, using your numbers this is not a good BRRRR deal. The primary goal is to recover all (or most) of your cash invested. If you have $91K left in the property after refinancing then you failed to meet that goal. The secondary goal is to cash flow after the Refinance. Your Analysis does achieve that. But, only because you chose to use a Refinance loan amount that is 50% LTV.

The main problem is the purchase price is to high for the ARV and Rehab estimate given. The purchase price should be closer to $165K in order to reach the primary goal.

To determine if a property is really a candidate for the BRRRR strategy you need to work it backwards from the ARV. Like this (using your numbers):

$283,040 ARV x 70% = $198,128 (This is your All-in Costs Target)

- $24,400 Rehab estimate = $173,728

- $4,500 Closing costs = $169,228 (you left off the Refinance fee)

- $6,000 Holding costs (my standard estimate) = $165,228

$165,228 is my Maximum Allowable Offer (MAO) or purchase price. This should allow me to get all of my cash invested back to use again.

Other things I see wrong with your analysis:

1.  The P&I payment should be $1,522.50.  If this is a Private Lender Loan then you usually only make interest only payments.  The balance of the loan is paid off with the refinance loan.

2.  The Refinance loan must be able to cover paying off the acquisition loan.  Therefore, as a minimum it should be $152,500.  Otherwise, you end up paying on 2 loans and really affecting cash flow.  The Refinance loan will also have closing costs or fees associated with it.

3. Did you account for Holding Costs in your Rehab estimate? They include (but not limited to) any loan payments, taxes, insurance, utilities, HOA fees, etc,. that occurs during the Rehab period and up until the property is fully rented.

Hope this helps.