Current BRRRR Property Analysis. (Warning, not a short read) :)

[Travis W.]

Hello,

I made a post earlier regarding my current situation, but i figured i didn't include enough information and it wasn't very put together. SO, i come back to you BP to help me sort this out. I will continue to ask questions (no matter how repetitive..) until I can gain better clarity and make better moves. If you so courteously would like to help me analyze this, it's much appreciated!

So, information.

House location: Smaller sized town by a bigger city that recently developed a new highway, bringing our town into a much better location. The house is in a residential area, about 2 blocks from the towns down-town area. Quiet location, majority of neighbors are older and close to retirement if not retired. Average price of buildings around mine are a bit higher. About ~15-20% or so.

House: SFH 2 bedroom, 1.75 bath, with a detached 2 stall garage which is halfway finished (it needs interior walls, but has insulation). It is recently remodeled house including a new deck, tiling, carpet, and a mud-room addition. Most everything has been brought up to date on it minus the shingles. Former owners took out some walls downstairs and created a new bathroom, and the basement is considered finished albeit quite small. It has its own exit door and could be changed into a bedroom with the addition of a egress window.

So, that's to give some background of the property and its location. On to the financials.

Purchase Price: $127,000

Loan Terms: 30-year amortized VA home loan @ 3.750%

Down-payment: $0, $1000 in Earnest money, and I paid no closing costs.

Rent: $1300, $1400 could be potentially done.

Rehab: I am figuring $5000, honestly not too sure, house is in pretty good shape, but shingles may need to be redone.

Property Taxes: $1552 annually, (this is $0 as of this year i believe because of an exemption I get as long as i am living in the property and having a 70% rating from the VA)

Insurance: $1284 Annually, seems high, but I feel that is because of the coverage I need to have for it being a VA loan.

Mait/Repairs: I am figuring about $1200 annually.

Advertising/Administrative costs: $300 annually

Variable Cost PM: 12% of income.

Vacancy: 8.3%

So essentially.

Income: $14,300 annually with the vacancy included.

Expenses: $6052 annually

NOI: $8248 annually

Mortgage is $588, or $7,058 annually

Cashflow annually: $1,190 / $99-monthly (closer to 200 if rent was raised 100 dollars)

Cash ROI: 23.80%

Total ROI: 70.51%

Cashflow-to-Mortgage ratio: 117%

Some other important factors:

Loan remaining: $125,000

Personal W2 income: $3,338/month

Personal Expenses with house: $1750/month

Personal Expenses without house: ~$400

Strategy: BRRRR.

So as you can see, for a new investor, I don't quite know what to make of this situation. It is cash-flow (not great however.) But, it has the potential to become so (~760/mothly at the end of the loan, which if I just paid it down would take me 4-5 years roughly). People say if it's not cash flowing great it will always be bad. If I pay down the loan some, and refinance (per the strategy, will it not cashflow better?) A 100 dollars, per door is still okay per me as it opens up my saving potential significantly. I understand unknown expenses happen (capex) and I know they will eat up my cashflow, but that is a risk i think can be taken with a high W2 income. My second move was to find a multi-unit that cashflows much better and utilize a FHA loan or private money for it, now that I somewhat understand the financial side of things better.. so, based on reading this, does this seem like a bad investment?

Some key questions:

1. Would a good idea be to live in the property for now, while I have the property tax exemption and pay down the loan best I can, so come later this year or next, I can refinance to a better cashflow?

2. If not, do you recommend I fix-and-flip this, or just cut costs and just sell it?

3. Is there another option I am not seeing?

4. Is taking on a multifamily, as long as it cashflows great, a good next step? (I know I only have an FHA loan left to use unless I refi out of my VA loan to reuse it.)

So, If you made it this far, I applaud you. I had to include everything i could think of so people understand the whole picture as i see it and not just some simple numbers that people could misconstrue what is at play. Thank you from the deepest part of my heart and I look forward to any responses.

Travis

[Brandon Hicks]

A big component of the BRRRR strategy is that there is typically a value add opportunity so that you can refi your money out of the deal and be left with a 75-80% loan to value ratio or less. Your goal should be to create enough equity and get all of your capital out. I don’t really see this as a BRRRR deal because it seems to not meet that metric.

For example:
Purchase price $50000
Rehab. $20000
After repair value $100000

That would allow you refinance with a small bank at $75-80k and get all of your money out.

I have a few houses that are thin on cash flow like this. They were no cash down/little cash down seller financing deals. In general, I’m not a fan of SFR’s as rentals. Multi’s do so much better cash flow wise.

I guess I’m confused as to what your intentions are with it. You didn’t mention where you’re currently living. Are you planning on living in this and then turning it into a rental at some point? If so, I’d just live in and look for multi’s to buy for rentals or look for a legit BRRRR deal. And then when you’re ready to move into a different personal residence you can either sell or hold it to rent but my inclination is that selling would likely be the better option. It frees up your VA loan.

As far as financing goes...you don’t just have a FHA loan at your disposal. You can finance up to ten properties with conventional loans, use smaller banks that lend for their own portfolios, use seller financing and private money. Lots of options so don’t place any limits on yourself.