$60k ARV, $30k Rehab. Looking for a BRRRR offer price

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$60k ARV, $30k Rehab. Looking for a BRRRR offer price

Brian Stieler
Investor · Grand Rapids, MI · Member since 2014 · 47 posts · 20 votes

I've found a seller looking to unload a flip project they didn't get around to finishing. I'm looking at it as a BRRRR project, however I've included some estimates that would leave some of my money in it. Would you mind checking my numbers for me? Let me know if there's anything else you'd like to see.

2bd, 1ba, SFH, ~850sqft, 

  • Asking price $35,000
  • Potential monthly rent: ~$1100
  • Mgmt 10%, Vac 8%, Maint 10%, Resv 5% = $235/m cashflow

Total Rehab estimate: ~$30,000

Property is currently gutted. No kitchen, no bathroom, some open-faced walls.

  • Kitchen $10,000 (Tile floor, Appliances, Cabinetry, Sink, plumbing)
  • Bathroom $5,000 (Tile floor, Drywall, Doors, Shower, Toilet, Cabinetry, plumbing)
  • Carpet in two bedrooms (~400sqft) $750
  • Finish walls $1000
  • Furnace $5000
  • Water heater $3500
  • Remove chimney $3000
  • Powerwash Exterior $500
  • Potential Termite repair ??

What should be my highest and best cash offer price?

if Cash-out Refi at 70% ARV = $42k - $30k Rehab

  • Offer with 0% of my money in ($0) = $12k
  • Offer with 10% of my money in ($6k) = $18k

Cash-out Refi at 80% ARV = $48k - $30k Rehab

  • Offer with 0% of my money in ($0) = $18k
  • Offer with 10% of my money in ($6k) = $24k

Any thoughts? Need more info?

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Most Popular Reply

Sebastian MarroquinPro Member
Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
9y

draft a plan: 

1: buy and hold and for how long? 

2: buy and flip and sale 

if you choose #1: do all of your numbers: and go to your local real estate office: talk to realtors or other people that can recommend good subs: or contractors : (you can go to your local building and safety permit place: they usually see people that are good and organized and people that are bad: as them for a referral: ask realtors for a 'whole sale' flipper contractor as they will be more reasonable. Subs will be cheaper but you will have to manage them and will take the hit if they F**** it up.... 

800 sq ft should really not be $30k (a cheap kitchen should be about $5k to 7k specially because it is probably small. (white shakers will do the trick) 

bathroom: about 4k to 5k if you are doing plumbing and some electrical : if not maybe closer to 3k to 4k (use 1.50 per sq foot for tile)

drywall and paint: laminate flooring : I don't know about chimney : but maybe don't take it out: just cover it with drywall....

make sure to get a $300 home inspection before putting another penny in there.... of course a flipper will say: I ran out of money.... blahhhhh : We can make a better return on other projects... really.... they know they can't make money here ... and thats the truth... (judging by this: I bet you can't ) but it could be a good home to buy and hold. 

specially if prices went up in the last 6 years. 

offer 10k : 20k for renovations: you are at 30k (if he doesn't want the 10k be willing to walk away: he will come back trust me) and if he doesn't , you just got better at negotiations ! 

Look at the rental market: bc you may have to hold it for some time. 

check in with banks and see if they will refi- cash out for you. (make sure you do your homework before hand: if you dont after reading all this.... then, good luck). 

I'm sure you can find other deals if this one doesn't come through : every month I tell my Girl friend: damn - "this is the deal of a lifetime" lol 

Is this a SFR or is it 2 units?

Learn construction numbers and material costs:  (i.e. go to home depot and act as if you were doing this home: and get pricing for everything: see what everything costs) 

learn ARV calculations

learn rental rates for your area

learn how to find your own deals or work with a realtor that is "investors friendly" 

good luck 

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14 Replies

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  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    9y
    I have a hard time believing the seller would accept, but I wouldn't go higher than 12k. How does a water heater cost $3,500?
    1Reply
  • Brian Stieler
    OP
    Investor · Grand Rapids, MI · Member since 2014 · 47 posts · 20 votes
    9y
    Darren Budahn I would have to agree with you at $12k. I'm going to see what kind of magic I can do to get a low purchase price, but I don't believe he's that motivated to sell. Good catch on the water heater. I'll put that at $1500, but will keep $30k as the full cost of rehab.
    0Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    9y

    Not sure where this house is, but $5,000 is high for a furnace as well for a 800sq ft. house. 

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Brian Stieler

    $60K ARV x 70% = $42K all-in

    Rehab $30K

    Holding costs = ?

    Closing costs = ? (2 closings)

    $42K - $30K = $12K (not including Holding and Closing costs)

    MOA = ????? You will definitely leave cash in this deal.

    Cash Flow analysis:

    How did you arrive at $235 for Cash Flow?

    Expenses are incomplete.  There are a number of miscellaneous expenses that will add another 5%.  I would recommend being more conservative in your analysis until you have verifiable numbers (I.e. 50% rule).  Don't adjust numbers to make it look good.

    I use 75% LTV and 4.5% APR/30 years in all my BRRRR analysis. I might get better terms in the end, but, to stay conservative I use these terms.

    $45K Refi loan (75% LTV)

    $228 (4.5% APR / 30 years)

    I strongly recommend you contact the Refinance Lender you are going to use and get prequalified.  Review the project with them.  If you cannot get Refinanced then what is the point.

    From what you have presented this is not a good deal to me.  Only positive is the rent to price ratio.  What kind of neighborhood is it in?  C or D?

    1Reply
  • Brian Stieler
    OP
    Investor · Grand Rapids, MI · Member since 2014 · 47 posts · 20 votes
    9y

    Thank you for the reply @John Leavelle

    Great catches:

    Holding costs from HELOC = 6% or $275/m

    Closing costs = $1500 for initial cash purchase + $6,500 refi closing costs

    This property is in a B neighborhood and is the smallest on the block. 

    I arrived at $235 cash flow by using my analysis spreadsheet:

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Brian Stieler Unload a flip? What exactly did they do? It looks like maybe they bought a place and did some demo and now want to ditch it. I'd be extremely worried if what they found out that you don't know. But that's the paranoid side of me. I'll just randomly guess that they got into a flip and figured out it was a bad deal and that they end up underwater. But what do I know, it's just a random guess. Have you had things like the electrical system and plumbing inspected?
    1Reply
  • Brian Stieler
    OP
    Investor · Grand Rapids, MI · Member since 2014 · 47 posts · 20 votes
    9y

    @Andrew Johnson Great question. I've chatted with this particular seller a couple of times, and have seen some of his other houses. From what I can gather he took on several projects at once and didn't have the time or money to rehab them. This one has been sitting idle for 6 years as he focused on his other houses. 

    We have not done an official electrical or plumbing inspection. It looks like new wiring was run through the house, and I would imagine some work would need to be done to get that completed. Plumbing is just an unknown at this time.

    0Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Just in your description above.

    Finish walls $1000.

    Is this house gutted to studs? If so and it needs insulation, the cost of that, plus drywall, plus paint is going to be many thousands of dollars. However $10000 seems high for an 850 SF house rental kitchen.

    0Reply
  • Nicholas Scatton
    Lansdale, PA · Member since 2017 · 174 posts · 77 votes
    9y

    If it were me i would get a contractor in there asap. Your costs are kind of all over the place, a few thousand here and there makes a big difference on that tight of a budget. 

    It hosestly doesnt seem like a good deal. Your going to leave money in the deal reguardless, i also doubt they will take less than 20k for the property given the work that  was done. 

    1Reply
  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    9y

    draft a plan: 

    1: buy and hold and for how long? 

    2: buy and flip and sale 

    if you choose #1: do all of your numbers: and go to your local real estate office: talk to realtors or other people that can recommend good subs: or contractors : (you can go to your local building and safety permit place: they usually see people that are good and organized and people that are bad: as them for a referral: ask realtors for a 'whole sale' flipper contractor as they will be more reasonable. Subs will be cheaper but you will have to manage them and will take the hit if they F**** it up.... 

    800 sq ft should really not be $30k (a cheap kitchen should be about $5k to 7k specially because it is probably small. (white shakers will do the trick) 

    bathroom: about 4k to 5k if you are doing plumbing and some electrical : if not maybe closer to 3k to 4k (use 1.50 per sq foot for tile)

    drywall and paint: laminate flooring : I don't know about chimney : but maybe don't take it out: just cover it with drywall....

    make sure to get a $300 home inspection before putting another penny in there.... of course a flipper will say: I ran out of money.... blahhhhh : We can make a better return on other projects... really.... they know they can't make money here ... and thats the truth... (judging by this: I bet you can't ) but it could be a good home to buy and hold. 

    specially if prices went up in the last 6 years. 

    offer 10k : 20k for renovations: you are at 30k (if he doesn't want the 10k be willing to walk away: he will come back trust me) and if he doesn't , you just got better at negotiations ! 

    Look at the rental market: bc you may have to hold it for some time. 

    check in with banks and see if they will refi- cash out for you. (make sure you do your homework before hand: if you dont after reading all this.... then, good luck). 

    I'm sure you can find other deals if this one doesn't come through : every month I tell my Girl friend: damn - "this is the deal of a lifetime" lol 

    Is this a SFR or is it 2 units?

    Learn construction numbers and material costs:  (i.e. go to home depot and act as if you were doing this home: and get pricing for everything: see what everything costs) 

    learn ARV calculations

    learn rental rates for your area

    learn how to find your own deals or work with a realtor that is "investors friendly" 

    good luck 

    2Reply
  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    9y

    ahhhh 

    forgot to say: 

    for this one: it seems that the current owner does not care.... 

    so my suggestion would be: offer him 8k to 10k or 

    *** say to him: look this property has been vacant for 6 years : 

    this is what I propose: What if I come in : and do the renovations: then I rent it out or live in it for X amount of months/ years. then I sell it and pay you 10k at the close of escrow: if I sell it for X (45k maybe) ? 

    you get your 10k : i put in skin in the game by renovating it: WIN / WIN situation right? 

    be quite and let him respond. 

    same scenario: and instead of selling it right away: you rent it out and you give him half of the net profit every month and 10k at the sale. 

    (essentially owner carry) 

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Brian Stieler

    Haven't been able to respond for a couple days.  This guy named Harvey has been sitting on top of my house.

    Have you checked to see the sells history on the property?  What did the Flipper pay for it? If it was $35K it is not worth that today.  I agree that the max offer should be $10K.  And try to get a firm repair estimate.  Don't go over $20K.

    1Reply
  • Brian Stieler
    OP
    Investor · Grand Rapids, MI · Member since 2014 · 47 posts · 20 votes
    9y

    @Sebastian Marroquin Thank you very much for the detailed response. I took plenty of action items from it. This is probably the 14th lead that I've tried estimating, and every time I learn some new thing to account for. It really does seem like the best way to learn how this is done correctly and profitably. 

    @John Leavelle I have checked the history, and it last sold in 2003 for $48k. I'm going to try offering $10k and see what happens. I'll keep you updated.

    0Reply
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