Hey BP family!
I have been researching and learning about real estate investment on and off for the last 3 years. I recently sold my stake in a rental property that I was part owner with my parents on and now I want to get my money back to work.
I have am working with a realtor in my area to locate multifamily investment opportunities and I think we have found one! I am having trouble interpreting the BRRRR calculator results and would really appreciate some veteran help.
If there is anyone out there who can help me dig deeper into this deal your time and expertise will be greatly appreciated!
Questions I have:
1. How am I supposed to know all the loan information before I have the loan?
2. How do I estimate what I am going to refinance for? Is it just pulling comps? What if there are no good comps?
3. Is there anything I am missing?
*I have estimated some of these numbers such as the purchase closing costs and ARV. What do I need to do to get more accurate numbers there?
*This link comes directly from our calculators, based on information input by the member who posted.
Thank you in advance for your help!
Hi @Logan Aardrup , Each market differs as far as generalizations. For example in the Columbus Region for a 30 year investment property typical numbers look like:
4.8% interest rate. 20% down. 1-2% cost for closing fees
This of cours varies drastically across the board. But it would be safe to assume the following. You should start calling some local banks and CU's to get more specifics.
As for getting an accurate ARV number, this is one of the most critical items and can make a deal bust if calculated incorrectly. For Dwellings 1-4 units, you need to pull comparables. Properties near by with similar finishes and a similar layout. (With my Refinance I actually pulled comps I wanted and gave them to my appraiser. I also walked with my appraiser as he did his report to make sure he knew all the upgrades I had made).
For 5 units plus the appraiser will most likely use NOI*Cap rate to evaluate a fair market price.
@Logan Aardrup congrats on finding what could be a sweet deal! The numbers look solid. I have a few notes for you:
- How do you plan to finance the acquisition and rehab? I see you're estimated a 10% down payment. Is this a hard-money loan or private money of some sort? I am assuming not since you've estimated a 30 year term and 4% rate. That would BREATHTAKING for a hard-money lender and I would want that contact information immediately! :)
- Do you plan to move into this 5-plex? If not, the terms that @Steven Wilson listed are a more probable than the acquisition numbers in your estimate.
- If you have those terms from the get-go, there's really no need to refinance unless there's a crap ton of equity in there that you pull and use on other deals. If you were to refinance, the terms will likely be less favorable than the terms of the initial purchase loan.
- If you are unclear about BRRRR, you're about 1 click away from ALL the info you could ever want on the subject. In general, BRRRR usually works for a property for which the acquisition and rehab are funded with cash or short term financing. Then, once the project is complete, you refinance out of the short term financing into a loan with more favorable terms.
Is that helpful? If not, feel free to message reply here or message me or call me and we can walk through it.
@Harvey Yergin IV,
Thank you for your prompt response to my post. I can't thank you enough.
As I have not spoken with a lender yet (appointment later today) I am not sure exactly what type of finance package I will qualify for on this deal. I have 10% in cash and am able to come up with another 10% if need be. I am hoping to find a financing package like a 203k that may allow me to wrap the cost of the renovation into the mortgage payment but I am not sure if that is possible on an investment property that I will not be living in. If that is the case I may have to look into a hard money loan to support the cost of the renovation. What are your thoughts in this area?
2. I have gone ahead and adjusted the acquisition numbers in my estimate to what @Steve Wilson suggested. Below is a link to the updated estimate. Please let me know if this link does not work for you.
3. How do I tell if there is going to be equity in there? That is what I am going for but I am not sure how to make the numbers work in my favor here...
Thank you both for your responses. Very helpful.