Help Me Analyze My First Deal

[Sam Griebenow]

Hey all,

I'm a new investor looking to kick things off using the BRRRR strategy in Lubbock, TX. I'm new to analyzing deals, so I was hoping to get a sanity check on a deal that's come my way.

This is an off MLS property currently owned by another BP member/investor/RE Agent/GC. She was planning to flip this herself, but thought it might be a good fit for me. The property was originally a 3/2 with garage, but the garage has now been converted to make the property a 4/2. The current owner believes it should probably just be converted back to a 3/2, but I'm interested in seeing if we can go to a 4/3 to increase appraisal price and STR gross potential.

Purchase price: $75k

Estimated rehab: $30k

ARV: $120k

Obviously, using the BRRRR method, the hope would be for purchase and rehab expenses to come to $90k, rather than $105k.

I'm torn on this deal for a few reasons:

1.  This is a long distance deal.  It would be a huge benefit to do this deal with a partner who is an investor, has her RE license, and is also a GC.  I have seen some of her listings and properties she's done in the past and they're right in line with my expectations.

2. I have watched the webinars, read the book, listened to the podcasts, etc... and I know that walking into a deal expecting an all in price at 87% of ARV rather than 75% or so of ARV isn't considered "buying right."

3.  Those same webinars, books, podcasts, etc... talk about the first deals "not mattering" beyond getting your portfolio started and learning.

Should I jump on a deal that looks fairly turn key on the outside that will leave ~$11k of initial investment in the deal to get things started or should I be patient and wait for something that appears to have better margins?

Shifting gears a bit. I have a friend/partner who is interested in being my "tenant" at these properties and using them for short term rentals. The idea is pretty simple: He'll pay me 1% of ARV with occupancy beginning immediately after remodel, and he'll get to keep what he nets beyond the 1% using AirBnB to manage STRs. I like the idea because it reduces my overhead expenses (no vacancy, no PM), provides cash flow to my partner, and allows me to refinance having a year long lease locked up.

Has anyone ever done this?  Any pitfalls that I'm not paying attention to?

Thank you all in advance for your time and any insight, wisdom, or feedback you can provide!

[Anthony Dooley]

Uh, No. I wouldn't do it. Investing $105K, assuming everything comes in exactly as estimated, for a $120K property? No margin. Long distance? Who will oversee the rehab? Partnerships? A fantastic way to get screwed when people don't actually do what they said they would do. Your first deal, or inexperienced? Yeah, definitely not doing this. There are deals in your town that need less work that you can easily drive to everyday and do some of the work yourself. Why doesn't the RE agent/GC buy this deal if it is good?