All Forum Posts by: John Leavelle

Howdy @Tim Lynch

Look at the 50% Rule Cash Flow estimate of $99.16. That is a safer number to go by. You did not include anything for CapEx (5% to 10%) depending on the current condition and life expectancy of all major components and appliances. Your Vacancy Amount is low for me. I never go below 8.34% (one months rent) for reserves. Are you responsible for any common area utilities? How about Lawn care/Snow removal? There are orher Miscellaneous expenses that can peck away at your Cash Flow. I strongly recommend you stay conservative with your Analysis.

Howdy @Anthony Batten

I see no one has provided any comments.

This is my take on your Analysis. Your BRRRR calculations basically look good. However, there are a couple of questions and some things you left out.

1.  Do not forget to account for the Refinance loan Closing fees.  $2,000 is average.

2. Make sure you have included all your Holding costs in the Rehab estimate. These will include (but not limited to) Taxes, Insurance, Utilities, HOA Fees, etc., that occurs during the Rehab period and up until the property is fully rented. The BRRRR Calculator will automatically transfer any amount you have entered in the Cash Flow expenses (i.e. Property taxes). You will need to manually add any others (Water, sewage, electricity) .

3.  Your Acquisition Loan information is confusing.  Is this a Hard Money loan?  If so the points are probably more than $272.  It is normally a percentage of the loan.  2% to 4% at a minimum.  $549.44 to $1,098.88.  The monthly P&I is usually interest only.  Therefore, it would be ($27,472 x 6.5% = $1,785.68 / 12) = $148.81.  If my assumptions are wrong let me know.

4.  You left out Insurance in your Cash Flow analysis.

5.  What type of property is it?  How old?  What are the current rent rates and what are the Market rates?

Overall you did a good job on your first analysis.

Howdy @Jason Howell

Are the 3BR comps around the same 720 sq ft?  Not sure I would want that small of a 3BR.

Howdy @Jason Howell

I strongly recommend you stick to using the 50% rule for expenses so you stay conservative with your analysis.  I’m sure Insurance is more than $5 bucks.  That will put you fairly close to 50% anyway.  If the property is close to your criteria at that point you can get more accurate numbers for an in-depth analysis.

Howdy @Christopher Allen

I agree with Chris Sellers.  You are being a little too optimistic with your Cash Flow analysis.  Unless you have the actual financial data to back your analysis you would be better served staying conservative using something closer to the 50% rule for expenses.

It could be a possible deal if you could have a lower Purchase price and/or room to raise rents.

Howdy @Dillon Beard

There is a lot more information needed to give a decent analysis.  What is the Market Value of comparable sold properties?  What is the current condition?  How much repairs would you expect to bring it to like new condition?

Suggest you do a more accurate analysis using the BP Rental Calculator.  Post your results here.  Be sure to use the loan for the House Hack and analyze as if you are already moved out.

Depending on what the market comps are and your ARV you may need to lower the purchase price. Use current rents for the analysis. Do not expect rents higher than market rates.

Howdy @Gonzo Sal

The first thing you should do is analysis the property as if you are not living there. Use the same loan type (FHA ?) for the analysis. If the property will not Cash Flow after you move out then it's not a deal to pursue. It is common to have negative cash flow while you live in one unit. Edit the analysis to reflect all units rented.

What is the rent for each unit?

Other observations with your analysis:

Your expenses are low.  Recommend you raise the Vacancy to a minimum of 8.34% (one month rent).

You left out Insurance.

I would increase CapEx until you have the property inspected.

Are you planning to self manage?  If not you should increase PM to 10%.  If you plan to expand your property portfolio and might use a PM in the future you should increase it to 10%.

Once you have analyzed the property with full rent just subtract your unit rent to the results while you live there.

@Garry DeFilippis

In my area I will not look at any property that doesn’t at least meet the 1% rule.  That might not always be possible in all markets.  You need to find out what is common in your area.

@Jonny Morris

This is how I approach BRRRR properties.

Quick analysis:  Property must meet the 1% rule (rent to asking  price ratio).  $100K  = $1,000 Rental Income.  It must Cash Flow a minimum of $100 per unit/m using 50% rule.  If it meets both it’s worth taking a closer look.

I prefer the current rent to be below market rates.  That way I can raise them after the Rehab.  

The most important part of the process is establishing a solid ARV based on recently sold comps. I then work backwards from there to determine my Maximum Allowable Offer (MAO). Here's the formula:

ARV x 70% - Rehab Estimate - Closing Costs - Holding Costs = MAO

I use 70% to determine my All-in cost Target. Most Refinance lenders provide a loan amount that is 70% - 80% LTV. Typically it's 75% . I want to try and keep my costs under that amount. 70% gives me a little buffer encase my Rehab goes over budget or the appraisal comes in lower than expected.

Then it’s just a matter of subtracting all my costs to figure out what my max offer can be.  Example:

$100,000 ARV x 70% = $70,000 All-in

- $20,000 Rehab 

- $5,000 Closing (Acquisition Closing, HML Points, Refinance Fees)

- $5,000 Holding 

= $40,000 MAO

Holding costs include (but not limited to) loan payments, insurance, taxes, utilities, HOA fees, etc., that occurs during the Rehab period and up until the property is fully rented.

I get a lot of “NO’s”.  But, when I do get a Yes it’s a good deal.

@Alex Kamunyo

Sounds like you are on top of things. Make sure you let the Seller (his agent) know you are using a FHA 203K loan. There is more red tape involved. And let them know you are limited in what your offer can be (because of the Rehab estimate).

Keep plugging away and good luck.