Should I close this BRRRR deal?

[Adam Byrne]

Hi BP,

I have a 14 unit mixed-use multifamily building under contract near Pittsburgh, PA. I've got a purchase contract for $48K. 

The building needs substantial mechanical upgrades, but the units themselves are in solid shape; they just need a quick paint and scrape. The building needs significant electrical rewiring, significant plumbing, boiler / radiator replacements or I can go electric baseboard heat, some masonry work and a list of miscellaneous items. My estimated rehab budget is in a range from $300K - $375K depending on some issues my sub contractors are researching. This would total an all-in amount of $350K-$425K.

I have access to a hard money line of credit that will pay for 75% of the ARV, so access to capital is available as long as the appraisal comes back positive.

The building has the potential to generate above $55K NOI (before debt service) which, in its market, could value the building at +$550K at a 10 CAP.

This ARV of $550K will give me the rehab budget and the purchase price ($412K) I'm estimating. There's a lot of risk with this rehab budget because we're dealing with the building mechanicals and an unexpected $25K expense throws off the numbers of the deal. This is one red flag for me.

I can break the building even by renting out around 9 of the 14 units, which seems achievable to me.

The building, once stabilized and refinanced could produce around $2,300 a month in cash flow or $165 a unit. Not amazing, but, it being a BRRRR deal, I can theoretically leave no cash in the deal after refinance.

Considering the high rehab risks and the relatively low profit per unit, would you do this deal? Why or why not?

Thanks!

Adam