Is this a good deal? Possible Brrrrr deal!

[Adam Ramsey]

I might buy a SFH for $60,000. I plan on making a cash offer and then doing the Brrrr strategy.

Purchase: $60,000

Rehab: $5,000-10,000

ARV: $90-100,000

Rent Price: $1,000

Being conservative I'm planning on ARV of $90,000 and repairs of $10k.

Refinance at 70% ARV: $63,000

Payment: $319 @ 4.5%

Taxes: $158/Month

Insurance: $75/Month

Vacancy 10%: $100

Maintenance/Cap X 10%: $100

Management 10%: $100

Cashflow: $148/month

I would borrow about half of the money initially from family and paying back after refinance (rate tbd) and pay the rest out of pocket. I have the my side of the cash handy or could borrow from a heloc at 1.9%. After everything I should have approximately $10,000 left in after cash out refi (factoring a little extra for closing costs and unknowns). Cash on cash return would be 17.7% (cashflow x 12 divided by $10,000) - think I did this right. I'm uncertain on the 2% and other rules.

The cash flow is not huge but a good return plus the equity. By looking at numbers I think it will be closer to $100,000 ARV. If it's that, my payment would be $355 @ $70k financed and approximately $100 cashflow but with little to no money out of pocket after refi. I'm trying to be conservative with all numbers. I'm expecting more of a 5% vacancy rate, plan on managing myself which would add $150 a month to cashflow. Repairs should be mostly cosmetic (flooring and painting) and hopefully closer to the $5K number.

Would love to hear your thoughts and whether my numbers look correct just on an analyzation standpoint. 

[John Leavelle]

Howdy @Adam Ramsey

What are you basing your ARV on? Fully Rehabbed/ like new comps? Is the property currently listed below Market Value? I'm skeptical that basic cosmetic repairs will drive the 33% projected increase without the property being below market value in its current condition. This is the most important part of the BRRRR strategy. You must have a reasonably accurate ARV.

Putting that aside here’s my take on your numbers.

Using the $90K ARV your All-in costs (Purchase price, Rehab costs, Holding and Closing costs) should be as close to $63K (70% ARV) as possible. So we have $60K + $10K + ?? (Holding costs) + ?? (2 Closings) = $70K plus.

Holding costs include (but not limited to) Loan Interest payments (borrowed from family and HELOC), insurance, taxes, utilities that occur during the Rehab period and until the property is fully rented. How long will the Rehab take? Arbitrary estimate $3K.

Closing costs are for acquisition and Refinance.  Estimate $6K ($4K + $2K).

The total estimated All-in is now $79K. How much it would be your Cash in the deal? That is the amount you use to calculate COC ROI not just $10K.

You obviously understand you will not be able to get ALL your money back. But, you must make sure you can payoff any borrowed money. Your HELOC is also borrowed money . So the question is how much is really your cash input?

Cash Flow for BRRRR deals are typically lower than regular Buy and Hold rentals. The 1% or 2% rules typically apply to the purchase. But, you still need to try and keep it close after the Rehab and Refinance. You can intentionally leave additional equity in the property to make it Cash Flow better. The only other Rule of Thumb I use is the 50% rule when conducting my Cash Flow analysis (Before and after the Refinance). If it's not going to Cash Flow then why waste my time and money.

Hope this helps.