[Advice} About to put in an offer

[Kelly Conrad]

Hey everyone! So we are this close to putting in an offer on a up/down duplex in West St. Paul, but it definitely needs some work. We want to do BRRRR to get us moving, and we have to use our 18,800 from a HELOC for part of the down payment, and then we have another 10,000 private loan we can use for repairs. We're thinking of offering 152, and right now this neighborhood is becoming very popular, so this home could be worth close to 170 in a few years.

Right now 2B/1BA that are nice look to be listing at ~1300 in the area. The units are currently rented at 845 and 815 (which we just can't do, it has to be risen to matter what).

We're thinking if we focus on the lower unit and upgrade the kitchen to make it look nice and then paint some rooms, and then create some storage that can be rented in the basement on a monthly basis, that we could rent it in that 1300 area. The upper unit would likely just have a few "must fix" items and paint some spots that need it, and we'd probably try to rent it for 925.

We're thinking that we should be able to get a tenant fairly quick in the upper unit to at least have something coming in while we fix up the lower unit to get it looking nice.

I'm guessing that we may go over all of the cash and loan amounts we have available and may need to put a few grand on a credit card in order to get the lower unit looking really nice. My question is, does the ends justify the means? Since we have to use the entire 18,800 for part of the downpayment and then the other private loan for 10,000, are we owing too many people to make it worth it?

Cashflow for 1325 lower once renovated and rented & 925 for upper pretty much as-is would be ~370 Cashflow and 8.9% ROI. Once we get the upper unit fixed up, I'm guessing we can start at 1,125 (or go more, whatever), and at that point, we'd have ~580 in monthly cashflow and 11.62 ROI.

Sorry for the long text, I'm just worried that because we have to borrow money in order to get started, that we won't actually be making any money on the deal. I'm hoping someone has been here before and can lend some insight on what they would do in this situation.

Thanks for reading!

[Rich E.]

Kelly,

Based on what you shared, the deal sounds ok (not great) from a cash flow perspective but $152 + reno cost to hope it is worth $170k in a few years does not sound good....especially for a BRRR.
 

Personally, I would not feel comfortable going into it this tight.  You would be negative on cash flow while doing the renovation and it does not sound like you have reserve for that.  If the reno runs into problems or you have trouble getting a tenant (it can happen even in a hot market), you might be in trouble without a nice reserve.

My $.02!

Rich