Analysis of First Deal (BRRRR)

[Ian Livaich]

Hey everyone,

I created a forum post nearly two weeks ago asking for advice on the analysis of my first deal. I have since revised those numbers to be more realistic and conservative and to reflect that this deal is now a BRRRR.

All feedback is welcomed.  I appreciate your honesty in advance.

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PROPERTY DETAILS

• Duplex (B- property).
• Located in very desired area of South Jersey (A- area) with easy train access to Philadelphia.

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OFFER SPECIFICS

• Listing price = $230,000
• Potential Offer = $175,000
• Expected renovation costs = $60,000 (includes a small contingency buffer)
• ARV = $310,000 (this is a conservative estimate and could be closer to $325,000 or higher depending on  eventual rehab level)

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INCOME

• 3 Bedrooms = $1,700/month 
• 2 Bedrooms = $1,300/month 
• (1) 2 Car Garage = $0 (This could rent for $150-250/month, but I wanted to be conservative and exclude it in case it is not rented out for the entire year).

Minus vacancy (8.3%) = $250/month

GROSS INCOME = $2,750/month or $33,000/year

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EXPENSES

• Taxes = $810/month
• Insurance = $110/month
• Utilities = $0 (I would be implementing RUBS for the non-metered utilities)
• Landscaping/Other = $85/month 
• Capex (7.2%) = $200/month 
• Repairs (7.2%) = $200/month
• PM (8%) = $220/month (we will be self-managing)

TOTAL EXPENSES = approx. $1,625/month

NOI = $1,125

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ORIGINAL MORTGAGE 

I understand some of you may be skeptical about these terms, but I have spoken to a particular portfolio lender who is willing to offer me these terms (original mortgage and refi)

• Finance Amount (75% LTV) = $131,250
• Down payment (25%) = $43,750
• Mortgage Payment (4.95% interest rate with 30-year amortization) = $701/month
• Closing Costs: $0 (My offer will be contingent on a seller concession of 3% for closing fees)
• Holding Costs: $5,000 

TOTAL CASH OUTLAY: $108,750

NEW MORTGAGE (same bank: I have confirmed these terms)

• Finance Amount (70%) = $217,000 (based of ARV of $310,000)
• Down payment (30%) = $93,000
• Mortgage Payment = $1,080 (I can secure a 4.35% interest rate with a 30-year amortization if I pay 3 points at closing)
• Closing Costs:  $10,000

NEW CASH OUTLAY: $118,750

CASH OUT REFI: $85,750

CASH LEFT IN THE DEAL: $33,000 (What does everyone think about this? I would want to pull more than this out ideally.  Do most of you avoid a BRRRR if you can't pull nearly 100% of your money out?)

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CASH FLOW

• Approx. $51/month or $608/year with PM (low but not negative)
• Approx. $271/month or $3,249/year without PM (we are self-managing)

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CoCROI

• Approx. 1.8% with PM cost included (this is a little concerning because of the amount of cash left in the deal)
• Approx. 9.8% without PM cost included

If you made it this far, I appreciate your time and welcome all of your comment, suggestions, and feedback.  

[John Leavelle]

Howdy @Ian Livaich

Your Offer price is to high for the Rehab estimate and ARV. The way I work up my offer is once I establish my ARV I then work backwards to develop my Offer price. Using your numbers it would look like this:

ARV = $310,000

Expected Refinance amount = $310,000 x 70% = $217,000

Offer price = $217,000 - $60,000 Rehab estimate - $5,000 Holding costs - $10,000 Closing costs = $142,000

You may think that is way too low for an offer. It might be. You may get a big NO. Doing the BRRRR strategy you should expect a lot of "No's". But, that price is where you get your 100% cash back. The higher the offer price is the less cash you get back.

As it stands you are projecting low Cash Flow ($25.5 per unit) as well as minimum CCR (1.8%). If you have a problem with the low offer at least lower your number where you can meet some criteria. Such as minimum of $100 per unit Cash Flow and minimum of 12% CCR. You need to maintain investment criteria that you adhere to in order to be successful.