New to BRRRR, Would like feedback on my first analysis report
Colorado Springs, CO · Member since 2019 · 2 posts · 0 votes
New to BRRRR, Would like feedback on my first analysis report
2 Replies
- Rental Property Investor · Sedona, AZ · Member since 2018 · 260 posts · 141 votes6y
Hi @John Parcha, I'm only a beginner so bear that in mind. If your post-refi ROI % is so much higher than your pre-refi, is there any way to refinance sooner than 12 months? I don't think it's unheard-of to get a seasoning period of 6 months (or even 4 if you're quite lucky). It'd be worse from a dollar amount standpoint, but better from an ROI standpoint, which seems like the bigger picture to me.
A total project cost of $101k and an ARV of $110k seems like a slim margin of safety, unless you're planning on holding for 3-4 years. If you are, it looks like your IRR is 17%, which isn't terrible at all:
Your refinance interest rate is 3.5%. Where are you getting that figure from? That's lower than many FHA (i.e. owner-occupant) loans. Maybe make a few phone calls and verify you can get that rate on a non-owner-occupant loan (unless you're planning to occupy part of the property after all?).
Your acquisition loan is for 3.88%, amortized over 30 years? Who is your purchase lender? If you're planning to sink $30,000 in rehab costs into the property up-front, I'm guessing it won't qualify for a conventional loan right away, and that you'll need to initially borrow from a hard-money / portfolio / private lender at a (much) higher interest rate, and then refinance once the property qualifies for a conventional loan.
Lastly, nice job being thorough in your expense itemizations. I get a smile on my face every time I see someone budgeting 10% for a property manager, because it happens so rarely. Looks like vacancy, repairs, and CapEx could be higher, but I don't know how old your property is, how much deferred maintenance there is, etc. So I'll defer to you on that. If you bumped each of those up to 10% as well, I wouldn't object.
I'm also curious whether you're sure about the electricity, water + sewer, garbage, etc. If this is a multi-family, are the utilities on the units metered separately? If they are, those expenses should be pass-through (i.e. the tenants will be responsible for those costs).
If the units aren't metered separately, find out how much it would cost to separate those per-unit. Your combined budget for electricity + water + sewer is $200/month. This doesn't include gas, because I don't see it included on your budget. If separate metering costs $10,000 (a completely hypothetical number), this pays for itself in 5 years.
This is more time than what your IRR tells you is the peak time to sell, but that timeframe doesn't account for the new NOI you'd see. Tenants paying utilities means lower expenses, therefore a larger NOI, therefore a higher sale price (assuming no change in cap rate). Run the numbers and see what happens.
- Colorado Springs, CO · Member since 2019 · 2 posts · 0 votes6y
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