Flip or BRRR on single family home

[Rob Bowness]

I am currently getting the inspections completed on my first investment property (single family home). I was able to make a cash offer due to using my HELOC. I would like to BRRR but I will not be able to pull out all of my invested money. Any suggestions on how I can make the numbers work?

[Jake Thornton]

@Rob Bowness

OK, so I've been number crunching. Forgive me if you've done this already (I'm sure you have) but it's also partly for myself as I venture into my first BRRRR next year.

I'm going to assume you get the property rehabbed by the end of the first holding month, and have a tenant in there for one month, before refi-ing at the end of month three.

So you purchased with HELOC cash for $220,000. I'm going to say that you put $25,000 into rehab costs. Your monthly tax to hold the property is $833, for a total of $2500 for three months. Your cost for your total HELOC payment for three months is $3,062.

So your total cost to buy, rehab, and hold this property is:

$220,000 purchase plus

$25,000 rehab plus

$3,062 HELOC payments plus

$2500 property taxes

TOTAL 250,562. 

After three months you refi for an ARV of $330,000, leaving 25% in the home. You leave $82,500 in, and pull out $247,500.

So your HELOC cash in was $250,562, and your cash out is $247,500. A difference of $3062. That $3062 pulled from your HELOC at a 5% interest rate, and payable over 30 years is a monthly payment of $16.44.

BUT WAIT you made a pure cash flow month on the third month of $2500. So that $3062 is now only $562. So now to pay that HELOC rate is only costing you $3.02 a month.

If you get a rate of 5% on the refi'd mortgage your principal and interest payments will b $1329 a month. Property taxes of $833. I'm going to assume you aren't covering any other utilities. 

Your payment then is $2,228 per month. Plus your HELOC repayment of $3.02

Your rent is $2500. 

Your cash flow then is $268.56 per month. 

Yes, you still have money in the deal that you have to pay for, but it's such a low amount and is easily covered by the monthly cash flow. 

The numbers change of course if your mortgage rate is higher, the rehab costs more, you have to hold the property for longer before rented etc. But from this deal I can see that I think you're gonna be ok.