Real Estate Agent · Columbus, OH · Member since 2022 · 84 posts · 83 votes
I'm a new investor and would like some help navigating a deal situation. My GF owns her grandmas house and her grandma just moved into another house so the old house is currently vacant and it can either be sold as is which is very outdated and old at the moment OR my GF and I could put some money into rehabbing it, then rent it and refi. The Estimated ARV is $400K , the house was purchased for $175,000 the current mortgage payment is $1381 with a 30 year fixed rate of 3.3% with 25 years left on the loan. I estimate it will take about $70k in rehab costs and 4 months to complete. Its hard to get accurate comps since this house is the only 5 bed 3 bath house in the zip code but based off of 4 and 3 bed comps in the area I estimate a minimum of $2k in rent. Once its rented I would refi it but who knows where the interest rates will be at that time.
I'm thinking there's an opportunity to execute a good BRRRR here but I'm having a hard time analyzing it since the house is already owned since 1999. I may be making this harder then it has to be but I'd appreciate some help/feedback.
It will surely depend on what the insurance, tax, and other expense figures look like, but I agree with Justin that $2k in rent for a property valued at $400k is not likely going to cash flow with today's rates - I would make sure to do your due diligence before finalizing any decisions.
you use the new loan when you refi to pay off the old loan. that's the key. so any proceeds from the new loan that are over and above all costs (including any old loans) are cash out to you. if it's less, then you've "left money in the deal."
sample calc - 400K ARV, 75% cash out refi = 300. minus closing costs - 295. pay off rehab - 225. pay off old loan amount - X. pay off holding costs - X. etc.
hope this helps. BRRRR is tough right now, i advise every new investor who asks about BRRRR on BP to proceed with caution. especially if you can't comp well. that's a yellow light.
The $2k finished rent number is concerning to me, if your trying to refi at $250k+ (60% LTARV) at current interest rates your debt service alone may be more than your rent. It may make more sense to fix and flip or sell "as is" versus holding it.
It will surely depend on what the insurance, tax, and other expense figures look like, but I agree with Justin that $2k in rent for a property valued at $400k is not likely going to cash flow with today's rates - I would make sure to do your due diligence before finalizing any decisions.
You would need to get it titled in your name and then hold it for seasoning and then apply for a cashout refi if there is equity or get a HELOC possibly.
@Jeremy Melloul I agree selling is probably the best option. The only thing your giving up here is that super low 3.3% rate... hard to swallow but based on those numbers it's an easy flip. If you can do some of the remodel it's even more of win. You could take the profit and buy two cash-flowing rentals, stocks at rock bottom prices, bonds, or a combination. It's a good time to buy.