Deal Check – what risks am I missing on this Brandon, FL BRRRR?

Question

Hi BP community,this Brandon, FL (Tampa suburb) deal practically fell on my lap, and I’d love to get a sanity check from experienced investors here — especially around risks I might be overlooking.

The property

Zip code: 33510, Brandon, FL

Type: 4 bed / 2 bath single-family

Condition: Needs full renovation (roof, windows, flooring, kitchen, bath, electrical, etc.)

The numbers:

Purchase Price: $100,000 (off-market, cash)Renovation: ~$100,000Total In: $200,000ARV: ~$330,000Refi: $200,000 @ 7% interest-only (after a year)Rent: ~$2,200/mo with 2% annual increase or flatExpenses: ~$8,500/year, growing at 2%

Insurance: ~1900 per year

Property tax: ~3000 per year

Other expenses: ~3600 per year

Hold Period: 7 yearsExit Strategy: sell and 1031 Exchange.I'm closing on June 20th, and anticipate renovations to take 2 months or so. Could any investor who knows the Tampa area well vet my assumptions on rent comps, expenses, and help me with vacancy, and demographics? Is there a target demographic that would make good long term tenant? I'm planning on self managing I live in Texas, but I have properties in Utah and Georgia, and I have been self managing for over 7 years now. What risks, if any am I overlooking? I know a lot of investors are running away from Florida right now... Refinancing should not be a problem, but I'm also willing to own it out right if need be. Any insights would be appreciated.

Mike Dymski · Answer

Finding a good, available contractor and managing a $100k renovation out of state is the hard the part for us part time investors.  Heck, it's difficult to do when you are local.  Sounds like you may have experience with it though.

Daniel Kokodoko · Answer

@Ned Carey thanks for the perspective. Yes, it's tight, but cash flow is really not what I'm after on this one, the up front equity is what I think makes it a good deal. Essentially a break even for me is alright. I have rental properties in Utah, Georgia, and Austin. I have been self managing them for about 7 years now. I have not seen this to be too much. And I have a demanding W2 job! I actually the longer I'm doing this, the more I think I'm learning. I can probably take on a few more properties, before I'm at capacity. @Mike Dymski, agreed, remote renovation can be challenging. This will be my 5th remote renovation (2 in Atlanta, and 2 in Salt Lake City), and I'm still worried it's going to go wrong! In all cases though, I have had people on the ground I could trust. So that helps. My in-laws live in the area, so I think I have a bit of an advantage. Plus it's a 2 hours flight away for me. But, I definitely would not try this in a market where I don't know anyone on the ground.

Daniel Kokodoko · Answer

@Dan H., I think ordinarily you would be right. But my long term goal is to do a 1031 Exchange of my current properties (mainly duplexes at this point) into a larger multifamily. The timeline for that is about 7 years. So holding this property aligns more with that goal, as opposed to paying the 20% capital gain tax. I do see a drawback here though: now I have to setup a new team in a new market just to manage one property. But I can always hire a PM. Or are we saying a 7 year hold is no longer a good idea in the Tampa area?

I guess I can also check to see what paying the capital gain now and investing the proceed of the flip + the initial capital into my other markets would look like after 7 years, and see which one of the options will grown my equity faster. Thanks for the input!

Chris Seveney · Answer

insurance and taxes at 2% year growth in florida. Might want to recheck that

Dan H. · Answer

My comments:

- other expenses seems a little low but may be ok because exiting at year 7 will be before large cap ex items start to heed to be replaced.

- $100k rehab in 2 months is very challenging but I did do a $100k rehab in just over 2 months just over a year ago.   I was on site every day and it was a lot of work.

- not sure the purpose of the hold is.   The cash flow is very little.  Rent $2200.  P&i $1331.  Expenses $708.  About $160/month cash flow.  Why not just flip and fully realize the value add as soon as you can?   This would optimize the return.   Basically $100k return (used 10% total selling cost including additional hold time) in 2 months (if you can actually perform at that speed) on $200k investment equates to $600k for a year or a 300% return.  Even if it takes you a couple months to sell, you are likely looking at over 100% return. The market price indicates that it is unlikely to have great appreciation.  Holding it for a couple hundred a month cash flow is going to diminish this return.

Good luck

Ned Carey · Answer

@Daniel Kokodoko it sounds like you've got some experience and boots on the ground you can trust. Just recognize that being out of state increases your risk.

The up front equity is a good deal, but why not just sell now, instead of taking losses for potentially years?

Ned Carey · Answer

@Daniel Kokodoko after financing and expenses I see a net cash flow of $1,700 a year. While that looks good for a $0 investment, for me that is pretty tight. I think you have under estimated expenses which makes it even tighter.

If the $3600 expenses co not include property management expense then you are managing your property for $1700 a year. I wouldn't do that.

Just trying to give you a little different perspective.  Good Luck.

Daniel Kokodoko · Answer

Thank you. You are right on the timeline. The contractor did not yet agree on this, and It definitely may take longer.

Jaycee Greene · Answer

@Daniel Kokodoko Whewww! You had me worried - I didn't want you to be told it could be done in 2 months and then they change their mind after they start working.

For what it's worth, my basis is that I have a gut rehab CFO client that usually does $10k/month on his projects. Perhaps your GC could do $15k-$20k per month if they're really "cooking", which would put it at 5-7 months in my opinion. Good luck!

Daniel Kokodoko · Answer

@Jaycee Greene, I'm using a contractor. What is a C2 reno?

Deal Check – what risks am I missing on this Brandon, FL BRRRR?

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