First Rental Purchase - What do you think?

[Christopher Manus]

Good Evening!

I checked out a property today and I'm ready to move forward with an offer - I would love to get some last-minute feedback to ease my nerves a bit. The breakdown of the deal will follow: 

Purchase Price: $35,000

Rehab: $10,000 (Conservative Estimate) 

Closing Cost: ~$1,500

ARV: $60,000 (Conservative Estimate - Low end of the ARV range)

Rent: $775

Cash Flow: ~$190

Cap Rate: ~10.6%

I have a private investor who will cover the entire cost of the project (Purchase Price & Closing Cost + Rehab = $46,500.) I will pay him an 18% annualized return until I refinance - The goal is to refi within 8 weeks; as the rehab should only take 3-4 weeks, max. 

So, I'll have holding costs in the area of $1,000 month to cover interest, insurance, taxes, and utilities. I'm going to assume that I'll hold the property for 3 months before refinancing to play it safe. I will refi at a 75% LTV in order to pay off my investor. If the ARV comes in at $60,000 - I'll have to come out of pocket another $1,500 to cover the spread to get the LTV down to 75%. I'm going to assume that I'll have to come out of pocket another $2,000 for refi fees (Correct me if I'm wrong here).

Total Cash Needed: $6,500 (Very Conservative) 

Cash on Cash: ~35%

Initial Equity: $15,000

I tried to be as conservative as possible in my estimates so this should represent the worst case scenario. If I can get the property rented out immediately after renovations are complete and if the ARV comes in higher than projected, that would offset some of my holding and backend cost and increase my COC return.

I'm new to this so please, by all means, poke holes in any of this if it doesn't make sense - Thanks in advance! 

[Andrew Syrios]

Do you have a bank lined up for the refinance? Some banks will loan you 75% of the cost of purchase and the cost of the rehab, so you may want to consider that if you have some money to put down. One thing I would note, most banks won't lend you on appraised value for a certain period of time (maybe a year or so), they will only lend 75% on the amount of cash you have into the deal. Some banks just want to it to be rented and performing, but I've only seen a few of those. So I would definitely make sure you have the back end financing lined up and understand what they're willing to offer.