First deal - do these #s make sense for BRRR?

[Brian Dickerson]

Working on our first deal and would love some input. Originally was looking for close to turnkey buy & holds but it's not going to work for our criteria in the market we're focused on. Trying to learn more about BRRR. Came across this bank owned property..brought a reputable contractor out for estimates, and these are the #s we have. I know for flips, 70% of arv minus rehab cost is a good goal as a purchase price, but how about for BRRR? Is this worth it?? An additional concern is having all that cash tied up for 6+ months. Are there lenders who wont make you wait 6mo to refi based on the ARV?

24k purchase price

32k in rehab

ARV = $70k conservatively

Rent after rehab = $800/mo

CoC ROI = 12.5%

Thanks for any input guys.

[John Leavelle]

Howdy @Brian Dickerson

Sorry I'm late adding to this post.

I have to disagree with the numbers looking good for an ideal BRRRR. Remember, the goal is 100% of your cost back in your pocket. This includes the Purchase price, Rehab cost, and the parts you have not included. That is Holding and Closing costs. The holding costs include loan payments (which you would not have using cash), Insurance and tax payments, utilities and lawn care incurred during the Rehab period up until you have the property fully rented. There are 2 closings to account for. The acquisition closing and the refinance closing. These 2 areas could add an additional $5K to $10K to your All-in costs.

I strive to meet the 70% rule for my All-in costs.  It is not always possible to achieve, but, that is the target.  I do this for 2 reasons.  First, it allows me a buffer encase my Rehab budget goes over or the new appraisal is lower than expected.  Second, I want the flexibility of not having to take the full loan amount if I need better Cash Flow after the refinance.

Your All-in costs total $56K (excluding Holding and Closing costs).  If you are able to use Delayed Financing as @Alexander Felice suggest you should be able to recover that amount.  But not the Holding and Closing costs.

If you use the Cash-out Refinance option (with 6 month seasoning) you will get a loan amount that is 75 - 80% LTV or $52.5K to $56K. Depending on which LTV you get will make a difference in how much cash you can get back. You must also realize the 6 month seasoning does not start the day of closing. It starts when the property is placed in service, ready and available to occupy. How long will the Rehab take 2, 4, 6 months? When would it be considered ready and available? That is when the seasoning starts! This in turn affects your Holding costs and your All-in amount.