Help Analyze my BRRR. Deal or no Deal (section 8)

[Paul Daniels]

Hello, all.  I would like to gather some input from some season investors about a possible deal I am pondering.  

About me:

I run a general contracting construction business located in central NJ specializing in distressed property repair.  We complete rehabs for investors, banks, realtors. flippers, etc.  We also do a lot of work for homeowners, insurance companies, etc.  Last year we completed 6 of our own flips.  These were low end homes bought for around 30K totally rehabbed with every single thing brand new and sold for $140K in C type neighborhoods. The work takes about 30 days but the entire process is closer to 4-6 months.  Marketing, finding a buyer who can get approved, closing, etc

About my Deal

While I very much enjoy the property flips it ties up cash flow, which prevents us from doing many properties simultaneously. There is a lot of opportunity in the rental markets in Trenton NJ.(F type neighborhoods for those of you unfamiliar with the area. Very poor high crime areas). I am interested in a SFH with an asking price of 30K. Rehab cost are approx 30K to have the home look amazing. We might be able to cut some corners and get the cost a little lower as well. We would purchase the property and complete the rehab with cash. The ARV should be around $120K. We should be able to take around 15-20K in cash equity out of the project using conventional financing upon completion. That would leave us with a mortgage payment of around $400 per month. Taxes are $1,569 per year, another $1,200 per year for homeowners insurance. We will also need to budget for lawn care, snow removal, repairs etc.

I am able to calculate flips very well but rentals are a totally different animal so I wanted to see what the BP community thinks.  My crew can easily handle the repairs of the property as needed so I do not consider that a major problem.  We will be replacing the major components of the property so we should not anticipate any major repair issues.  The question here is would this seem like a good deal for long term buy a hold even though the property is not producing major monthly cash flow numbers.

Let me know your thoughts.

Thank you all in advance. 

[Jason D.]

@Paul Daniels it can certainly be done and "F" neighborhoods can, on paper, generate great cashflow. Two word of caution.... 1. You will run into the same cashflow issues with the BRRRR as you have been running into with flips. The normal 6 month seasoning requirement will slow you down without the cash to do multiple deals at once. 2. Notice I said "on paper"? War zone neighborhood rentals require a TON of oversight, and can be a full time job on their own. If you arent equipped to handle the workload required to manage these units, they can get away from you very quickly.