[Calc Review] Suburban Philly Equity Building Deal Review_Nov 2023

[Ian Campbell]

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*This link comes directly from our calculators, based on information input by the member who posted.

Hi all,

I'm looking into an atypical BRRR deal in suburban Philly (see attached BP report). There are 2 homes on the property, and since the main house (5br 5br) would be my new primary home, so I'd be using a 203K construction loan for the rehab with a 5% down payment. My max offer would be $950K, so I'm using that for the purchase price. I would need at least $400K to rehab the 2 buildings to get it to an average price/SF compared to nearby homes ($350/SF, or $2M). My calcs say I would need to HELOC or privately borrow $160K for the cash needed to cover the 5% down payment, 2% initial closing costs, 6 months of initial mortgage (PITI), 2% cash out refi fees and the cost of the HELOC/private loan for 6 months. 

For what it's worth, there is an ADU on the property that is a fully separate house (5br 1.5ba) that can likely rent for $3K/month once renovated, for which I have accounted for in my $400K construction loan cost. However, given the cost of what the final mortgage might be, it hardly puts a dent into the monthly cost. 

I think it's a great equity-building opportunity rather than a cash flowing opportunity, but I am wondering if I'm missing anything. Please let me know if anyone sees any glaring red flags I missed, or if the negative cash flow/mortgage is so great that the opportunity might not be worth it if I hold on to the property for too long.

Thank you!

Ian