First BRRR - Could use any additional analyzing insight

[Bart Modzelewski]

Hello BP, I have a property or two picked out that interested in BRRRing but before jumping in, I would like to run the numbers by you to see if there is anything I am missing. The numbers have been pulled from MLS and standard online mortgage calculators.

I have not included either of the closing costs. How much would that effect all of the numbers? What number should I use for standard closing costs (initial purchase and refi)?

Original Purchase Price - $66,400
Down Payment (20%) - $13,280
Remainder of Loan - $53,120

Initial Monthly Payment - Approx. $408

Renovation Cost - $30,000

Cash out of Pocket (down payment + renovation cost) - $43,280

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Need to Refinance $96,400 (remainder of the loan + cash out of pocket)

ARV would need to be $137,700 (since %70 of this amount is the $96,400 I need to pull back out)

After Refinance New Payment - $604

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Now as for cash flow...

Expenses:

Mortgage (includes P&I, taxes, insurance) - $604

Property Management 10% (even thought this will be self managed) - $60

Vacancy (10%) - $60

Repairs (10%) - $60

Cap Ex - $100

TOTAL Expenses - $884

EXPECTED average rent for the area - $1300

Cash flow/month - $416

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With your expertise, how does everything look? 

Would the BRRRR work?

Does the cash flow look good?

Do you have any additional information that I may be overlooking?

Thank you in advance!

[John Leavelle]

Howdy @Bart Modzelewski

My first question is what type of loan are you using for property acquisition?  It looks like a conventional bank loan.  Is the property currently livable?  If not you may have trouble getting a conventional loan.

Closing costs are going to be 2 - 5% of the purchase price.  I use 3.5% as a Pro Forma average.

One thing you did not include in your calculations is Holding costs.  They will include the costs of the current loan (monthly payments), any utilities turned on during Rehab, and insurance during Rehab.

So Cash out goal looks more like this:

$13,280 Down payment + $30,000 Rehab + $2,324 Closing + $1,224 Holding = $46,828

Holding cost is based on 3 months Rehab ($408 * 3). It does not include insurance and/or utilities during Rehab.

Your Refinance number is $99,948. You ARV is now $142,782

Of course you need to determine the ARV first. If your $137,700 ARV is correct then your purchase price would need to be lower to get 100% Cash out on a 70% LTV bank loan.

Cash Flow analysis comments:

I like your conservative numbers on the expense items you've listed.  I like using 55% for expenses in my initial Pro forma analysis. At least until I can verify hard expense data.  Then I make appropriate adjustments.  For example; you will have other miscellaneous expenses (Lawn care/Snow removal, utilities, pest control, legal, accounting, marketing, evictions, etc.).  All these smaller items add up quickly.

It would help if you gave us more information on the property. Type (SFR, 2-Plex, 4-Plex), age and square footage, number of bedrooms/bathroom. Is it currently rented? Rates?

It appears you are using a lot of assumptions in your entire BRRRR deal. If your numbers are correct then yes this could be a good BRRRR deal. However, the most critical part of the process in establishing an accurate ARV based of good comps. Then getting a realistic Rehab cost to help establish what your purchase price needs to be.

One last thing I strongly recommend, if you haven't done it already, is get Pre-qualified for your Cash-out Refinance loan. Before you purchase the property. That way you know what your loan information is going in. The loan limit, the LTV percentage, terms, interest rates, and seasoning requirements. You have the information you need for your Cash Flow analysis up front . It will make the whole process smoother and less stressful.

Hope this helps.  :)