[Calc Review] Help me analyze this deal

[Chris Viglietta]

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Hello, I'm developing the habit of analyzing 2 deals per day, but I'm running into a problem when trying to make the numbers work. Specifically, I'm -$300 cashflow in year 1, but then I'm positive cashflow in year 2 onwards. I'm 90% positive that this has to do with the period before the refinancing, but I want to better understand which levers to pull to make the numbers work as I analyze more deals. 

I experimented with putting more money down, but year 1 cash flow is still negative. Which lever do I pull to decrease my monthly expenses?

This is my first investment property and I plan to BRRRR it and convert the garage into an ADU / jr, ADU. Running the numbers with 5% down, it seems I need to front $300/month until month 6 when I can refinance and then I'm slightly above breakeven. In year 2, I can move out, rent out the ADU and earn an extra $1800-2k/month in cash flow.

P.S. I want to include 10% for property management since I will eventually move out and want to build in that cushion. Is this wise to do on the BRRRR calculator?

[Jaysen Medhurst]

Hi, @Chris Viglietta, I think you should spend a bit more time learning about property analysis, then come back and re-run this. A few tips/questions as you get the process under your belt:

• Yes, always include management (10-12%) in your underwriting.
• What kind of property is this MFR or SFR?
• Separate out the different income sources (each unit's rent, for example)
• There a lot more expenses than just the debt service: taxes, insurance, repairs, maintenance, CapEx, lawn care, snow removal, water/sewer, house utilities, professional and admin costs. Take some time to understand what expenses apply to what kinds of properties and how to determine what to budget.
• Why a 4-year mortgage at the time of refinance?
• You mention in the post that you plan on adding an ADU. Where is the cost for this? Is that what's increasing the value from $550k to $700k?

As a global comment, a $550k or $700k property that only brings in $3500/month is never going to work.

[Dan H.]

I agree with everything @Jaysen Medhurst stated but wanted to be much more explicit.  This RE will be huge cash flow negative for many years.  

@Chris Viglietta you should research the 50% rule.  Understand why 50% is a generic rough estimate of the expenses.  Doing this will provide insight as to expenses.  In particular long term cap expenses are often under estimated.  

Good luck