Charting a course

[Jayson H.]

With my introductions out of the way, I’d like to jump right in and ask for some advice from my colleagues:

Background:

Property #1: I currently own (inherited free and clear) a duplex (3/2 & 2/2 and SFR (3/1) all located and deeded as a single property that I'd value at ~ $300k. All three units are currently rented, the annual numbers are:

Rent, pet, & garage fees: $33,600

RE taxes: $2,280

Insurance: $1,140

Maint. reserve: $5,000 (The property is older, so I’m building a cushion)

NOI: $25,197

Property #2: I'm currently under contract to purchase a REO 3/2 SFR. I'm leveraging the 25% down payment requirement with equity from property #1. The residence was built in 2010 and needs appliances, paint, and gutters to improve storm water drainage. I've projected the annual numbers:

Purchase price: $135,500 (I know this is well above the 70% rule, but it's a start)

Cash down: $2,500

Closing costs: ~ $6,000

Rehab: ~ $3,000

TOTAL OOP: ~ $11,500

ARV: ~ $155k

Anticipated rent: $15,300 ($1,275.00/month)

RE taxes: $1,532

Insurance: $381

Maint. reserve: $780

vacancy: $765

NOI: $11,841 - $9,096 = Yearly cash flow of $2,745 or $229/month

COC: 23.88%

Anticipated equity: ~ $19,500.00

I'd like to pursue a BRRR strategy with the business and thus, I need capitol to kickstart the cycle. In addition to using property #1 to satisfy the down payment requirement of property #2, my bank is offering me a $150k LOC as a second DOT. on property #1. The terms of the LOC are prime + 1%, 1% origination, and a 24 month term (renewable after 24 months for minimal costs). If I draw on the LOC, it will need to be paid down to $0 within one year. I'm seriously considering this.

Question/reality check: Does anyone see a downside to this scenario or would advise me to navigate the waters differently?

Thank you all for your time! -Jayson