Potential BRRR Project

[Jeremy Johnson]

Hello,

I am still very new to real estate investing and looking for some guidance on a potential BRRR project.

Some context

• There are 2 houses next to each other that would need complete rehabs. They were built in the late 1890s and have barely been touched in the last ~10-20 years. A hodge-podge of updates over 100+ years have left the houses with awkward spaces and outdated everything.
• The larger house is 1,625sqft duplex with a 3 bedroom unit on the first floor and 2 bedroom on the second floor
• The small house is 1,150sqft duplex with 1 bedroom on the first floor and 1 bedroom on the second floor
• Asking price (FSBO) is around $240k for both (7 bedrooms total, 4 doors) but I'm fairly certain there is plenty of wiggle room
• These houses need *complete* remodels. We're talking new roofs, new interior layouts, bathrooms, kitchens, everything. 
• The houses are right next to each other on a corner lot that is ~2 blocks away from a brand new hospital that is being built in my town
• Current rents - these are definitely below current market value even before the new hospital goes in. For example, I see recently remodeled 2 bedroom units are going for ~$1,000, 1 beds going for $650+, and 3 units going for $1200-1400.
  
  • Large house = $1,500/mo ($900 for 3 bed, $600 for 2 bed)
  • Small house = $1,100/mo ($550 for each unit)

I see a huge opportunity here to buy these houses this fall/winter and let the current leases expire and then rehab them next spring/summer just in time to rent to nurses/young professionals working at the hospital. I'd like to hire a GC to do the remodels and be as hands off as possible as I have 2 other major projects that I'm currently working on.

The deal makes sense in terms of cash flow. I could put 20% down of asking price and still make ~$1,000/mo as is. There are current tenants and leases until next spring and our rental market is strong due to the local university. And I'm fairly certain after renovations the deal would bring in between $3,500-4,000/mo.

BUT, I would like to do this deal with a private investor and use the BRRR method. The part I'm struggling with is how to structure a BRRR deal, specifically in my market. I can't see these houses having a combined ARV of more than $300,000 based on recent comparisons. ($180k for the larger, $120k for the smaller) and that's pushing it. Being that I'm fairly certain a remodel using a GC would come in $80k-150k, it seems like this just doesn't make sense unless I can get the seller down.

I'm wondering if I'm missing something big here? The cash flow seems to be there, but based on the market I'm in, the ARVs don't seem to really reflect the income potential. Would I just need to get the houses at a much lower price than asking for it to actually work?