Is this a deal to BRRR or not?

Question

I have a lead on a house that I can get for 30K cash with an estimated rehab cost of 15K. The ARV is 70K and will rent for $750. My numbers look like:

Rent $750

Vacancy(8.3%) $62

Property Taxes $71

Insurance $58

Repairs/capex(18%) $135

Management(10%) $75

Cash Flow $349

Option 1: refinance at 6M-1Y with a 30 yr mortgage. Mortgage would be 283, which leaves cash flow at $71 and an infinite return

Option 2: When I refinance, I leave about 7-8K in the deal or whatever amount leaves me at $100 per door

Option 3: refinance immediately with a portfolio lender at 20 yr fixed. Mortgage would be 343, which leaves a measly cash flow of $11 and an infinite return.(not really an option at this point, but I don't see how anyone makes a portfolio loan work after their max amount of Fannie loans)

My question is should I shoot for $100 per door and pass on this deal if I can't get it for a lower price and all my money back, or go with it since my ROI is infinite? My goal is to get to 20 doors in the next 5 years or as quickly as possible with at least $100 per door and 12-15% ROI.

Marcus Auerbach · Answer

Without haveing seen the house I am pretty certain that you remodelling cost is way low. We are typically at around $40 per sf in Milwaukee for a full remodel. So thats $44,000 on 1,100 sf. What you are doing is you are extending the life of an old house for a few years with a $15k cosmetic upgrade. The worst part about this is that the 15k go mostly to wear items like paint and carpet and n ot to capex like rood and windows. So in a few years you will still be faced with the full 44k and how do you plan to pay for that? BRRR does not work well if the cost of a full rehab is more than 30% or ARV. My vote: stay away.

Brian Garrett · Answer

Not enough meat on the bone I'd suggest to look for something with better numbers.

Jorge Ruiz · Answer

@Cory WellsOption #1&3 isn’t enough cash flow-on least in my opinion and I'm sure a lot others would agree. Option #2 you need to know what value “whatever” is- not a good way to do business. Overall this is not a deal I would involve myself in. All the best to you...Jorge

Jim Peret · Answer

The numbers don't add up to me. My situation if I find a 70k ARV 3 bedroom in class "C" that I can get in for 45k total I 'd probably buy it. That doesn't mean it's right for you. But 70K houses have property taxes moe the $852 annually. $58 a month seem a bit high for insurance also. Maybe 15K repairs isn't right either. How'd you come up with that?

Brian Garrett · Answer

You can factor 10% for repairs and CapEx which helps your cash flow.Then Option 1 doesn't sound so bad having all of your money back and $150/month.

Eric Gross · Answer

If you are able to get all of the money you put into it back, and even cash flowed a small amount your ROI would be amazing because you would have no money in the deal. In your numbers your capex was at 18% even though you would be rehabbing the house which is a little unusual. If you replace the big ticket items with the rehab you can assume there life expectancy will be longer. Other then that it comes down to your goals, I personally would love to make money every month in which I have $0 invested. Hope this helps. Good luck!

Jorge Ruiz · Answer

@Cory WellsMy previous response should have ready that is NOT a deal I would involve myself in.Also for a $70K property I would expect more than $100 a month. Still not enough for me when for $70K in Milwaukee I see a bit more than $100 a month.

Cory Wells · Answer

@Caleb Heimsoth you are correct that it is not a full Rehab. I am planning on 3-4K for exterior and interior paint, 3k for flooring, 4k bathroom remodel, 2K to paint the kitchen cabinets and install new counters, and then 2K for Misc items.@Jorge Ruiz If I left around 6K in the deal, I would cash flow $100 a month and my COC would be 21.8%. So that would be getting into the deal for around a 10% down payment instead of 20%. Here is a little more background info for everyone to double check my initial repair and expense numbers that I used so I can be more knowledgeable going forward The house is a 3/1 built in 1955 with 1100 sqft and it would be in a C neighborhood. Also, what amount of cash flow and COC after all expenses is everyone seeing with 60-70K houses? Otherwise it looks like I am close, just need to find a house that I can push the rent up into the lower 800's and then I would over the $100 mark with a 30 year refi.

Caleb Heimsoth · Answer

The purpose of a BRRR is to get all your money out. However with the numbers you’re using you won’t cash flow. How extensive of a rehab are you doing? If it’s a full rehab then your maintanence seems high. At 15k though I suspect that’s not a full rehab