[Calc Review] New to BRRRR, please help me analyze this deal

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I have been primarily looking at buy and hold deals with minimial repairs needed, but a foreclosure came to market this week that I am looking to BRRRR. I was pretty consertative with the numbers, any guidance on the BRRRR costs/returns or dealing with foreclosures would be appreciated as I am doing a crash course to analyze this property - bids have to be in by 5pm tomorrow and don't want to miss a potential opportunity.

Okay so you buy it with cash and then you do minimal repairs, rent it out, and refi. Your 15 months to refi seems long, why 15 months? Just being conservative? You don't seem to be gaining a ton of equity or getting high cash on cash returns-which is what I look for in my BRRRR deals. Maybe this is a great property in a great area but if you flipped it you'd lose money after you paid commissions. So to me there isn't quite enough of a gain for the risk. Do you know if the property is tenant occupied? Do you know there are no major structural problems or other big-ticket items? I don't really know your market so it's hard to evaluate but those are just some thoughts based on the info presented.

Thank you for the reply. I am being ultra conservative with the numbers, I feel I can likely do the repairs for at least 5k less and the house should appraise for at least 10k higher, adding another 15k in equity. Honestly I've been looking for several months and am getting a little antsy, not looking to hit a home run, but would be satisfied with a single and start the true learning process for realestate investing. The 15mo refi is related to something I read that many lenders want to have 12 months of ownership prior to refi, but I am aware that there are some that will do sooner, I just have not identified one in my market yet. Trying to run this model for what I feel could be a worst case scenario.  Property not occupied and the basement has some water, but think it can be resolved with a sump pump which is factored into the rehab costs, and having a foundation company evaluate prior to close if the offer is accepted. 

Sorry I don't have the time to dig into your numbers but are you plugging into the formula the capital cost of your investment before refi?  140k at 2.5%- to up to 12% (Think Yield Street investment) is lost income before you refinance. 

@Greg Teamann Got it, your worst case really isn’t that bad, so maybe just go for it! If you want to do and there is limited downside why not?

@Barry Wittine , I did not, but I am planning to use a HELOC for this transaction and did account for the interest costs for the period prior to refi, and holding costs for the property. Thanks for the feedback!

@Lee Ripma , Thanks again, I did submit an offer for the house, so hopefully I'll land my first investment soon!

@Greg Teamann Vacancy rate seems low - I suggest to use a minimum of 8% (unless you have landlording experience and have a make-ready team in place, capable of turning a house in matter of few days).

Repairs depend on the age and condition of the house, and the rehab you put at the beginning. 8% sounds about right, if you took care already of most major mechanicals. If not, I would count for more. Same for CapEx.

Insurance - you should use the actual. And should include an umbrella policy too.

Same for taxes - make sure you use the actual tax. And make sure you don't look at a tax bill with exemptions you not going to get.

You'll also have utilities (for that period of vacancy), and maybe other administrative (like the cost for CPA related to your rental and lawyer for LLC) and incidentals.

You should include property management too - 10%. Even if you plan on self managing, your time still has value. And you might reach a time in the future when you'll want to be truly passive and have a PM do the prop mgnt for you. If the rental doesn't cash flow with 10%PM expenses, look for another one.

Question: does your rehab include trash removal and dumping? landscaping? any photography and/or staging? 

Question: how did you conclude on the $1,300 rent?

Hi Greg,

I'm looking over your numbers and a few questions come to mind. First, what is your goal? Most people I know who use BRRR want to buy the property at a price where they can purchase, rehab, and recoup most of their money back after the refi. If your total purchase cost is $143,500 and you expect the ARV to be $150,000 then at refi you will only recoup $112,500. I see you plan on holding it for 13 months and it shows cashflow of $650 collecting $1,300/m and using the 50% expense rule. Are you using your personal cash only on this purchase? I didn't see any loan interest payments calculated into your cashflow numbers until after the refinance. Also, expect your cost to be a little more than what you have projected for the refinance. Closing cost could end up being about $1,000 more than what you have projected (this is just from experience).

Right now it seems that in the end, you would have aprox $35k tied up in the property after all is said and done, and $42 of cashflow according to your own projections.  Correct me if I'm wrong, but it seems you might be going to the appreciation play here right?  My only problem with this is that it is a lot of work since for almost the same amount, $35k, you could go out, buy a home that is already rehabbed  (20% down conventional loan).  I'm not in your market, but if I found this deal in my market it would be a no-go for me personally. 

My last BRRR left me with $30k in equity, $12k of my own money tied up into the property, and a cashflow of about $300. It's ARV was $140k. I personally do not like having any more than $10-15k max of my own money tied up at the end of any deal, and I need a minimum of at least $150 cashflow after all expenses/loan payments are accounted for. Every investor is different though and you just have to go with what you think works best for you that helps you reach your own personal goals. I know you said you were running worse case scenario numbers, but if you're confident in the higher ARV and lower rehab cost, then the deal becomes a bit more attractive.

I hope this was of any value to you and if I misunderstood anything please do correct me.  Congratulations for getting out there and looking at deals! :D

Thanks all for replies, still waiting for a response on the offer, bank owned so not sure what a typical response time is. For my first property I am looking close to my home to self manage which I think will help me learn that part of the business to better manage aproperty management company long term. The market I am in is pretty competitive, I find from talking with other local investors, the traditional rules of thumb seem to rarely apply in this market. For this deal, I am looking at is as a hold for approx 5 years, managing the whole time. The primary number I am focused on is my annualized return, rather that cash ROI, I am ok with some of my cash sitting in the home if it can potentially do more for me over that period than sitting in an index fund. Appreciate the detailed comments, even if I don't get the house, just going through this exercise is helping me think more critically about these investments.