Can you take a look at my BRR Analysis?

Question

Hi BP Community,

I'm practicing with the BRR calculator and would love to get your thoughts on this deal:

It's a bank owned property, 3 family - Bank is asking 425K cash(too much) ARV 550K, rentals $1,600/unit  I was playing with some scenario's where I would use other people's money to do the entire purchase (except closing costs) - so using a private / hard money loan at 13% plus 3 points for a purchase price of $245K cash plus $50K rehab - here's my report, it still doesn't look like a good deal as I am negative for the entire year while holding until the refinance and it's not calculating cash on cash return although I am paying the closing costs out of pocket ...

Would love your thoughts and advice on my analysis and what would make this a good deal

Thank you !!

https://www.biggerpockets.com/calculators/shared/7...

Dolores Waldron · Answer

@Scott Hollister, thank you - you pose some great questions that I hadn't thought about ...

The triplex is rented and bank is selling as-is without no showings of inside of building and have asked not to disturb tenants that's why I was thinking they may entertain a lot less as it's very risky to take on, my estimation on rehab is purely cosmetic and I used it for calculation purposes as I do not know the inside of the property which I think is very risky ...

When looking to do the refi on a BRR - particularly a triplex is it best to go with a commercial lender?

Thanks @Brent Coombs - yes, I have no doubt they know how to crunch their no's ... and thank you .. yes, getting all money back would be the idea...

Thank you for your valuable input !!

Brent Coombs · Answer

@Dolores Waldron, From the Bank's perspective, $425k might NOT be too much!

They know how to crunch numbers too (or so I've heard).

Why SHOULD they "give away" (more than) $75k equity?

By the way, you should aim so that at refi, you get back ALL your own money, including closing costs. Stick to your own numbers! All the best...

Dolores Waldron · Answer

Thanks @Scott Hollister - really appreciate your advice !!

Scott Hollister · Answer

@Dolores Waldron buying as-is is ok IF you have done deals before. For instance, in CT we have a huge problem with crumbling foundations. Which can cost upwards of 150k so just be careful. I would bring someone knowledgeable to help you out. (An inspector that does side work?)

If it is bank owned then it should be free and clear of liens. (Don't take my word for it, still new to this and learning as well)

As for not seeing the inside just run your numbers on what it would need to be totally rehabbed. Count on it being destroyed and then try to get on the inside. (If it were me I would walk around looking to move into the neighborhood, I would knock on the door and ask for their opinion about the street. Then I would casually ask how they liked living here, Ohhh how long have you lived here? Are there any good landlords here? Do they take care of things in a timely manner because my last landlord didn't do a great job... (See where I go with this? Just friendly conversation)

If you are doing your first deal go traditional financing, unless you get a better deal with credit unions that hold loans in house. Most likely your best bet is traditional. (1-4 unit qualifies as traditional, commercial lending is 5 units and up)

Scott Hollister · Answer

Hello @Dolores Waldron,

Do you think the bank will consider a 245k offer?

• Also, if you put ARV at 550, 425k purchase with 50k rehab. (You would force 75k appreciation unless I'm missing something about numbers?) That doesn't necessarily mean it will work as a rental though, or as a BRRR. You would end up leaving some money in the deal. 
• Also, I have always lost money during a holding period on a BRRRR. But thats ok because I plan for that as part of the holding costs. 
• Have you thought about the tax increases after the rehab? Does it still cashflow? 
• START making connections with local banks to refinance you out earlier than a year. I have found commercial lenders that will do it for me as soon as a I have it rented and based off the ARV. Shoot for 6 months after its rented or just ask around banks to see what they require.  
• COC return hasn't worked for my BRRRR's because I exit the house with $0 out of pocket so it will always come up 0. Whats more important is factoring your time acquiring the property. Your return is the monthly cash flow after you have it stabilized.

I can't tell you if its a good deal, YOU have to decide that. IMO if you can make a deal work and its worth your TIME and MONEY, go for it. If not, onto the next:)

Can you take a look at my BRR Analysis?

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