[Calc Review] Help me analyze this deal

[Jason Gott]

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*This link comes directly from our calculators, based on information input by the member who posted.

Can someone please help me?  This would be my first "Rental", I have 3 homes that I have sold under contract but I cannot get any deals to work in my favor when it comes to a standard rental.  Every time I purchase using cash everything is great as far as cashflow.  The problem is when I go to refi to get my money back I lose all cashflow and usually owe per month.  So my main question is, "How do you get your money back to buy another investment if all of your money is tied into one?"  Even if you use "other people's money" at say a 6% interest it is a deal killer!  Hope this makes sense.

[John Leavelle]

Howdy @Jason Gott

The first thing you need to get right is the ARV. Why would you spend $90K (Purchase and Rehab) for a property valued at $60K? That is the biggest problem with this deal.

What you are trying to do is commonly called the BRRRR strategy here on BP. You should be using that calculator to analyze your deals.

If your objective is to recover all your cash to use for the next deal then you need to change your method of calculating/analyzing these deals. Establishing a solid ARV is the first step. Then you work backwards from there to figure out what the Maximum Allowable Offer (Purchase price) should be. When you go to Refinance the property to get your cash back the lender will give you a loan amount that is 70% to 75% LTV based on a new appraisal. Hopefully the appraisal and your ARV are the same. You also need to use that percentage to determine your All-in costs amount, which includes Purchase price, Rehab costs, Holding and Closing costs. It looks like this:

ARV x 70% = All-in Costs Target

- Rehab Costs 

- Holding Costs 

- Closing Costs =

Maximum Allowable Offer or Purchase price 

If you can follow this formula you should always be able to get all or most of your cash back.

Now to make sure you have positive cash flow you still need to be as close to the 1% rule as possible.  You should try to obtain a Refinance loan that has a reasonable rate (@5%) and amortization for 30 years.  That will keep your P&I payment much lower than the 15 year you have in your report.