Excited About Our First BRRRR Deal

[Jordan Puffer]

Hey everyone! My wife and I are closing on our first buy & hold on the 18th of this month! The numbers look good: Location: Broadway House Number of Units: 1 Rent: $1,350.00 Square Feet: 1,666 Upfront Costs: Cost per Unit $95,000.00 Price: $80,000.00 Cost per Square Foot: $57.02 Cap Improvements & Repairs: $15,000.00 Cash on Cash Return: 19.84% Total: $95,000.00 Debt Coverage: [minimum 1.6] 1.78 20% Down: $19,000.00 Capitalization Rate (ROI) 9.05% Current Assessed Value: $29,666.00 Loan Amount: $76,000.00 Net Cash Flow per month: $314.08 Interest: 4.88% Net Cash Flow per month per unit: $314.08 Term (yrs): 30 Total Rent/Month: $1,350 GROSS SCHEDULED RENTAL INCOME: $16,200.00 Less: Total Annual Debt Service: $(4,826.40) Less: Operating Expenses: $(6,470.63) Less: Vacancy and Credit Losses (7%): $(1,134.00) NET CASH FLOW: 3,769 NET OPERATING INCOME - (NOI): 8,595 INTEREST: 3,680 DEPRECIATION: 3,455 NET INCOME: 1,461 Property Insurance: $1,000.00 Property Management (10%): $1,620.00 Placement Fee (30%): $405.00 Real Estate Taxes (5.06179%) $1,501.63 Repairs and Maintenance (12%) $1,944.00 Services: Snow Removal: 720 Utilities: Electricity: N/A Gas and Oil: N/A Sewer and Water: $30.00/mo Other

[John Leavelle]

Howdy @Jordan Puffer

First I sincerely mean this. Congratulations on getting your first deal. However, this does not appear to be a BRRRR deal. It looks more like a straight Buy & Hold rental (still a good deal). Let me explain.

1. BRRRR properties are normally purchased with short term financing (Hard Money, Private, Money, Cash, and a few other methods). This is because the properties are usually (but not always) distressed and require rehabbing before a conventional lender will touch it. You are using conventional financing which leads me to believe only cosmetic improvements/repairs are required.

2.  The Purchase price $80,000 plus Repairs $15,000 totaling $95,000, along with the $19,000 (20% down) and Loan of $76,000 totaling $95,000 lead me to believe you are using a Fannie Mae Homestyle Renovation Mortgage.  A form of conventional financing.

3. To use the BRRRR strategy means you want to get all or most of your Cash out using a Refinance loan. This is where you will have a problem. Refi Lenders will typically provide a loan amount that is 70 - 80% Loan to Value (LTV) based on a current appraisal. Typically it is 75% LTV. That means if the appraisal is close to your ARV of $110,000 and the LTV ratio is 75% the loan amount would only be $82,500. So you only get $82,500 to payoff your existing loan and get all your cash out. Additionally, I did not see you include any Holding or closing costs in your data. They need to be accounted for. After the loan is paid off you only have $6,500 remaining ($82,500 - $76,000 = $6,500) to account for your cash invested.

Given that you already have a decent interest rate (4.88%) I would not run the risk of a higher rate with the Refinance.

This appears to be a good cash flowing deal.  You might want to just be happy with that and just start saving up for the next deal.