Help Me Anylize My Brrrr Deal

[Devin Stott]

Hi Guys,

I would love some advice. This is my first BRRRR or semi-BRRRR deal and I'm hoping you can give me some good advice! Here are some of the details:

Non-conforming duplex currently rented top and bottom

List Price: $199,000

ARV: $285,000 - $325,000 I'm going with for $285k for extra buffer

I estimating repairs at $50k and 6 months

Rent should be $1900+

Property Tax $115.00 /month

Maintenance Costs 10% $190.00

Vacancy 5% $95.00

Insurance $60.00

Other Utilities $50

mortgage payment on $228k (80% of $285k) around $1168

Cash flow (rent - mortgage - other costs) 1900 - 1168 - 460 = $221

Cash on Cash should be around 10%

I have $30k cash and $30k in a HELOC and could probably get more

If I use a hard money loan and then refi at 80% LTV, after 6-8 months (is there the 1 year waiting period with a hard money lone?) then I'll have $22k plus closing costs left in the deal.

I could also get a traditional mortgage and refi after a year but would need more money upfront for a 20% down payment and repair costs.

What are your thoughts?  Do you have any experience with different financing options?  What is the preferred financing method?  What am I missing?

Thanks in advance!!!

Devin

[John Leavelle]

Howdy @Devin Stott

You show a $199K List Price and $285K ARV. But what is your projected Purchase price? The same as List? This is important to distinguish. Let me show you why:

Purchase Price = $199K

Rehab Estimate = $50K

Closing and Holding Costs = $12K (My estimate)

Total Cost of Project = $261K

ARV = $285K

HML Financing = ??

Cash = $30K

HELOC = $30K

Refinance Loan Amount = $213.75K (75% LTV) or $228K (80% LTV)

With the amounts you provided the HML amount will be ruffly $201K. Your HELOC will cover $30K of Rehab. All remaining costs (Rehab, HML points, Closing and Holding) will be covered by your cash). Now lets use the Refi loan. You payoff the HML loan first $228 Refi loan (80%L LTV) - $201K HML = $27K. You must next payoff the HELOC. $30K - $27K = $3K remaining on HELOC. You now have 2 loans you must pay on.

Your Purchase price is to high for this deal!

Your Cash Flow analysis is way to optimistic. 25% for expenses is not very realistic. I would double that amount for analysis and budgeting purposes. If you actually achieve 25%. Great! More cash in your pocket. I strongly recommend you stay conservative so you do not end up losing your shirt. You did not include CapEx or Property Management in your analysis. Vacancy is lower than what I would use. I like 8.34% (one month rent). CapEx and Vacancy are important reserves to maintain (they are there if you need them). Even if you plan to self manage it is recommended you include PM in your analysis. If you plan to grow your portfolio you may want a PM Service in the future. If it is not included now it is hard to add later. I also believe your time is worth something (even if you plan not to pay yourself).

It is my opinion this is not a good deal as you have presented it. It would have to be an offer price of around $166K to work for me at 80% LTV.