[Calc Review] Help me analyze this deal

[Michael Leeson]

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*This link comes directly from our calculators, based on information input by the member who posted.

So grateful for the BP community and all the help so far! Any feedback on this deal is so appreciated!

Looking to buy duplex #2 - for long-term hold and primary goal of growing net worth. Thank you!

[Joe P.]

A few thoughts:

1. You're treating this as a BRRRR with a refinance after 6 months. But to do that successfully (that is, in my opinion, break-even or better on your initial investment with a cash-out refi, e.g. you put in 100k cash for purchase and rehab, and you can cash out 100k), you are missing the mark here. You're going to spend thousands on loan costs just to spend thousands on more loan costs in 6 months? Makes no sense to me. If you were getting an initial mortgage at 150k for example, and then cash-out refi at 250k loan, ok, maybe...but this isn't a true BRRRR.

2. Your $108 per month vacancy is way, way, way too low. You should plan for 1 month of rent as vacancy, so $3600 a year. Most units take investors about a month to turn over. Some can do it better/quicker, fantastic, good for them, that means more cash in your pocket. But you should absolutely account for something different.

3. 5% for repairs and CAPEX is probably too low over the course of time. You're spending money to rehab this unit early on, which is great, so 2k for maintenance and 2k for CAPEX seems right if everything is new/serviced/clean. But those percentages will likely need to go up over time.

4. As an investor, there is likely little chance you get a loan for 4% unless its your primary residence. If this is your first deal, and you have a perfect credit score, maybe I could see a 4.5%? But unless you've verified these numbers with a mortgage company, its probably not realistic.

All in all, I'd re-run once you firm up some of these numbers. Don't forget ancillary costs, e.g. city costs (permits, inspections, licenses, etc.), other utilities you may have to front when units are vacant or being rehabbed, HOLDING costs, which is to say money you need to spend when you have no income coming in, e.g. during rehab, and you should always, always, always, account for property management.

Your time will become sucked up in trying to rehab, rent, and manage this property. What's that worth to you? A deal that has $100 cash flow per month with no management fee to me, is a 0-sum game. You want to be an investor, do you ALSO want to be a landlord and manager? Did you get into investing to get passive income, or did you get into it for a second job? That's the difference in being an investor and a landlord. I did it for the former, so I have someone managing for me. Consider it.