[Calc Review] Help me analyze this deal

[Trina P.]

*This link comes directly from our calculators, based on information input by the member who posted.

Hey Biggerpockets experts! First of all, I would just like to thank this amazing community for the support everyone provides for one another. It's truly remarkable how an enormous community like this can change lives. Like my own! 

If any of you have a spare second I would love some help on this deal. I'm new at the BRRR strategy and can't understand why my cash on cash ROI remains so low in this deal.

Any other tips on things I could be doing differently when analyzing this deal would be superb. Thank you!  Report attached.

Here's my report

[John Leavelle]

Howdy @Trina P.

Let me give you a couple of overview tips.

1. Develop a solid ARV based on comps. Everything is dependent on this number.

2.  Get prequalified/approved for the Refinance loan prior to purchasing the property.  Have your exit strategy in place to make the process go smoother and with less stress.  Your Private/Hard Money Lenders will appreciate knowing you have the means to payoff their loan in place.

3. Determine your All-in cost Target Amount. If your Refinance loan amount is based on a 75% LTV then that is what you use to determine your Target amount from your ARV.

Example: $160K ARV x 75% LTV = $120K All-in Cost Target Amount.

4. Estimate Rehab costs and Determine your Maximum Allowable Offer (MAO). $120K All-in - $60K Rehab - Holding Costs - Closing Costs = $60K MAO (Purchase price) less Holding and Closing costs.

Ok now that I spelled that out let me comment on your deal.

You should always include what type property you are looking at. SFR , 2 - 4 Multi Family, or 5 plus Multi Family.

As you can see from the formula I just gave you your Purchase price of $70K is too high ($10K plus).  Or your planning to much Rehab.  One or the other would have to change to meet the target amount.  Closing costs will probably be more than $1K.

Holding costs can be confusing. They include loan payments, taxes, insurance, utilities, and any other costs that occur during the Rehab period and up until the property is fully rented. The BRRRR Calculator does include some of these automatically (but not all) in the Rehab calculations. NOTE: I do not use the BRRRR Calculator for my deals.

Your Rehab time (4 months) and Refinance time (6 months) are good.

Your Acquisition Financing information looks good other than you left off the 12 months (1 year) Amortization time.

I am assuming you are using $97.5K for the Refinance loan amount in order to achieve the $197 month cash flow. This is a primary reason your CCR is so low. The ultimate goal of this strategy is to get all your cash back out and payoff the Acquisition loan. If you stay within the All-in Target amount and use the full Refinance loan available you will achieve infinite CCR.

But, there is a second part of the BRRRR strategy that you must analyze. "Cash Flow "! If it doesn't Cash Flow you are wasting your time. You seem to understand that. Lower cash flow rates are a common side affect of the BRRRR strategy. You have to decide what is acceptable for both cash flow and CCR.

I would not do this deal with the numbers you have presented.  The purchase price and/or Rehab cost would have to be lower.  It still may be workable.