BRRR Analysis on 2 Family

[George Smith]

Im looking at 2 family which will be bought as follows:

20k Cash

84,300 Private Money Loan

I have a bank that will refinance at 80% LTV (130K ARV = 104K mortgage).

I understand that the TOTAL Cash Invested shows 0.00 but I'm assuming thats only on the Refinance. The acquisition shows 30,000 cash needed at purchase which should be covered buy the private money loan.

Im obviously trying to get my money back back out but im a bit confused on:

-How much cash i am putting up? 30k? I only wanted to use 20K of my own with a private loan.

-Where is the amount that Im profiting which will now be the downpayment? It says that total cash invested is 0.00 and my Cash on Cash ROI shows Inf. after refinance but Im confused on how much money im putting in vs. how much profit I pushed into it.

-I added the initial purchase price, closing cost, and rehab and then subtracted my 20K downpayment and entered that amount for the loan amount on the initial purchase. Was that done correctly?

https://www.biggerpockets.com/calculators/shared/2...

I appreciate your time,

George

[John Leavelle]

Howdy @George Smith

You show the following numbers:

Purchase price $45,000

Rehab estimate $57,000

Rehab period 5 months 

Acquisition closing cost $2,300

Holding costs ?? ($3,793.50 ?)

Total $104,300

Acquisition Financing 

$0 down payment ($39,3000 surplus?)

$84,300 Private Loan (9%/?? Years)  Term ??

$632.25 Mortgage payment 

$20,000 cash at closing 

Refinance 

Loan amount $111,000 ?????????

Loan Fees $7,000 (Closing costs)

6% APR/25 years

$715.17 Mortgage payment 

Ok, the first thing I see wrong is your Refinance loan amount ($111,000).  80% is $104,000 ... No more than that.  Unless your lender is allowing you to roll the closing costs into the the loan above the 80% amount.  I always include Refinance closing costs in my All-in cost basis (your $104,000).  Anything over that amount means you are not get that back out.

Is your Private Lender paying for the purchase price and closing costs?  Then what ever is left goes towards the Rehab costs along with your $20,000?

Did you include Holding costs? Holding costs include loan payments, Insurance, and utilities during the Rehab period and until the property is fully rented. That means ($632.25 x 5 months = $3,793.50 Mortgage payments) + ($205 x 5 = $1,025 Insurance and Utilities) = $4,818.50. There is not a place for Holding costs in the BP BRRRR calculator. So it needs to be included in the Rehab estimate. These are your costs and not your Private Lenders.

Now let’s see what’s left of your $20,000

$20,000 - $4,818.50 Holding costs = $15,181.50

$15,181.50 - $7,000 Refinance Closing costs = $8,181.50

$8,181.50 - $2,300 Acquisition Closing cost = $5,881.50

Amount remaining for Rehab is $5,881.50 or $8,181.50 if Private Lender covers Closing costs.

Here’s the way I see this deal:

Purchase price $45,000

Rehab costs $57,000

Holding costs $4,818.50

Closing costs $9,300

Total All-in Cost Basis $116,118.50

Less $84,300 (Private Lender Loan) = $31,818.50 your responsibility 

Refinance loan $104,000 - $84,300 Private Loan payoff = $19,700

$19,700 cash back.  However,  since you have $31,818.50 in the deal you are not getting all your money back.