Auction: would your BRRRR or just leave them alone?

Question

Hi all just wanted to get your thoughts on these two auction wins:

property 1: won at 96.5K, Appraised value at 180k. est rent 1400.

property 2: won at 77k, appraised value at 160k. est rent 1200.

assuming 20% down (yes I can finance these) would be about 35k down.

with just a straight investment/dscr loan the COC would be about 30%.  But i could BRRR with hard money then refi with appraised value into long term for my capital back out.  this would allow me to pull my 35k back out but reduces cash flow by about half.

which directions would you go and why?

Andrew Bang · Answer

I would always take $1 cash flow and no money left in the property , then any amount higher with money stuck in the property.  I love when I eliminate the Cash on cash return equation from a rental.  When I look at a property, how much do I have to buy it for to not leave any money in it.   Cash flow more than $1, covering all PITI + ongoing expenses/maintenance/CAPEX.  I'm benefiting from appreciation, equity pay down, and tax depreciation.   Win, Win, Win, Win,  with $0 left in the property, win again.

Paul Han · Answer

my agent walked through them today and are rentable as-is. but I will look into what we can get out of renovations. thanks!

Ryan Deasy · Answer

@Paul Han hey, congrats on those wins! i have used hard money alot in the past. if those need reno and you can drive the value even higher that is the way to go. once they are fully fixed up, do a cash out refi and buy another one or two. its good you can afford the purchase (down payment etc) but it would be great to have the rehab funds (assuming it needs rehab) included in your loan so you are not coming out of pocket. that helped me alot when i was getting started.

Paul Han · Answer

would you do the same method using hard money just skipping the reno part?