Help Analyzing a Deal

[Ethan Grier]

Hey BP! 

I found this sight about two weeks ago on my quest to learn all I can about REI. I found and read the BRRRR book, and have since been looking at properties and running numbers on them, mostly for practice/fun.

Fast forward to now, I've found a potential BRRRR (kind of - more info coming) very near where I live, and I believe I've decided on the route I want to go, but I'm hoping to get more advice from people familiar with BRRRRing. On to the details:

I found an older duplex that has been on the market for quite a long time in the middle-eastern part of Wisconsin. It was listed rather high (for its current condition anyway), and has since dropped to a list price of $79,900. I ran comps around the neighborhood (I also drove through it several times), and its looking like the ARV could be anywhere from 120-130k. So far, the deal looks okay. If I'm serious about buying, my next steps would be to arrange a tour with a local contractor to get a bid on the rehab costs, get the house inspected (ideally during the initial tour so the contractor and inspector can exchange notes), and find financing. 

This is where I'm a bit stuck. Firstly, I do plan on living in one of the units with my family for at least 2 years, since I don't currently own a home - we're renting an apartment. I believe that is the requirement for FHA financing in my state. So one of the things that I'm considering is to do an FHA rehab loan (FHA 203k) and take advantage of not having to bring in an outside lender for the initial purchase. If we do this, I'd have to come up with a 3.5% down payment for the cost of what the purchase is, plus the rehab cost (ex. buy house for 70k, add rehab for 30k, down payment would be 3500).

The other option that seems to be available to me is to try and find a private or hard money lender, and go the more traditional BRRRR route. The margins would have to be a bit larger in this case, in order to pay back the higher interest rate for the initial lender. That said, I don't really have any connections in my area for private or hard money lenders, so I'm kind of in the dark as far as that one goes.

In either case, according to some of the calculations I did (BRRRR calculator doesn't quite work for this one, since I'll be living in it, and possibly going with FHA financing), the property would have a negative ROI by about 3-4% while we were living in it, but once we moved out, that would jump up to a 9-10% ROI based on conservative assumptions including property management.

My goal while living in the duplex would be to save up enough money for a down payment to start BRRRRing aggressively, but I'm kind of wondering if it would be possible to get the best of both worlds and starting BRRRRing right away by staying away from the FHA financing and trying to create enough equity pull out to continue BRRRRing without a 'saving' period.

Does anyone have any advice in this situation? I know its kind of hard to give recommendations without knowing the rehab cost, but I'm not 100% sure how to get that without having a contractor quote on it, at which point I'm assuming I'd have to be pretty committed with an exit strategy arranged (pre-approval). In any case, I'm all ears!