Working on my first deal and have a BRRRR? Please help.

[Chad Shell]

Gave myself the 90 day challenge two months ago and am looking to do a BRRRR deal. Can someone tell me if this house/deal would possibly qualify.

Purchase price possiblity - $80,000

ARV - $150,000

.70 = 105,000

- $30,000 in repairs

= 75,000 

Rental income would be about $1000. Obviously I'm a little confused on some of the basics. Good area of town but needs some work. Any advice or questions would be great. Don't want to screw up my first deal. Thanks

[John Leavelle]

Howdy @Chad Shell

I see no one has responded.  

You are starting the right way.  Here are the key steps to take.

1. Know what the ARV should be ($150K).

2. Find your Refinance Lender before purchasing a property. This way you be fairly sure what what the Loan terms will be (LTV percentage, Term length and Rate).

3. Establish your All-in Cost amount. This is the same as the Refinance LTV (70%) or $105K.

4. Estimate Rehab costs.  $30K.

5.  Determine Holding and Closing costs.  Holding costs include acquisition loan payments (if any), tax, insurance, utilities, etc ... that occurs during the Rehab period and up until the property is fully rented.   There are 2 Closings you must account for.

6. Determine your Maximum Allowable Offer (MAO). All-in cost amount - Rehab - Holding - Closing = MAO or Purchase price.

You may end up with what seems like extremely low offers.  But, that is how you buy right using this strategy.

The second half of course is to do the Cash Flow analysis after the Refinance.  If it doesn’t Cash Flow at all then your wasting your time.  The cash flow can be adjusted to an extent by reducing the amount of cash you pull out.  You will have to decide what the break even point is for your goals.

Just remember when you use this strategy cash flow is normally lower than it would be with a standard Buy and Hold deal. That is the trade off with getting infinite CCR.