[Calc Review] Help me analyze this deal

[Anthony Heatley]

View report

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

Good evening everybody,

I watched the Newbie webinar today and Brandon mentioned that the single most important skill that needs to be mastered is deal analysis. I took advantage of the discount code and upgraded to pro so I could practice using the calculators as much as I need to. 

I found a foreclosed home that interested me and decided to run the numbers on it. I had to edit the report 6 or 7 times; playing around with the numbers and learning how properly enter all the data.

A realtor that I met on BP (don't know if I should name drop here) advised me that the ARV would be about 130K and that it would rent for about $1,100. 70% of 130,000 is 91,000. My repair estimate number ($28,000) was completely arbitrary, assuming that the house didn't need any extreme repairs. I have no idea what an average rehab costs but I've heard Brandon Turner mention a range of 20K-50K throughout various YT videos and podcasts.

(80000 hard money loan)

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91000 refi loan amount

-28000 repair costs

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63000 max purchase price

58000 starting offer

Once I found this number, I plugged in what I thought to be all the necessary numbers and generated the report. I don’t remember what all the initial numbers were anymore, but I’m pretty sure it cashflowed about $24 after refinancing, and after accounting for the 50% rule. But as I was going through each section of the report, I couldn’t make sense of certain numbers. As I worked backwards, I realized that I didn’t understand how to enter the info properly to describe the terms of the hard money loan. Then I realized that I had to get actual example numbers for a hard money loan. So I found one on BP and used their calculator to see what a loan would cost, then I figured out how to properly enter the data in the calculator. Needless to say, the numbers changed. Once I saw that all the necessary numbers were in place and they made sense. I decided to see what purchase price would make this a better deal. I worked my way down to $52,000.

Following the 50% rule, the property would cash flow $62/month and we’d have $0.00 in the deal after refinancing. I realized that during the initial rental period (12 months before refinancing) that property would be cashflowing negatively ($152/month). So my question here is, is this normal? Or is this an indicator of a not so good deal? Another thing I don’t completely understand is the holding cost. How and why is it $3,127.60?

I’d appreciate any comments or corrections on my analysis. I’m just trying to get a grasp on each concept of the process and calculator.

[John Leavelle]

Howdy @Anthony Heatley

I see no one has responded to your post. Let me say first that I do nothing but BRRRR deals currently. However, I do not use the BP calculator. I have a few issues with it. Here's what I see:

1. The information you provided for the HML is incorrect. The loan amount is $80,000. Not $82,195. The $2,195 in points is the fee you must pay up front and separate from the loan. Your Monthly P&I is really Interest only payments at $800 ($80,000 x 12% = $9,600 / 12 months) per month. Not the $821.95 you are showing.

2. Good to see you included all Closing costs (Acquisition, HML Points, and Refinance Closing Fees).

3. Holding costs is where many people mess up with their calculations. Holding costs can include (but not limited to) mortgage payments, insurance, taxes, utilities, HOA fees, etc., that occurs during the Rehab period and up until the property is fully rented. So your Holding costs ($3,127.60) is automatically transferred from the HML P&I payment and information you included in your Cash Flow analysis (insurance and taxes).

P&I $821.95 +

Insurance $70 +

Tax $150.58

= $1042.53 x 3 months Rehab 

= $3,127.59

You did not include any utilities in your Rehab budget I’m sure.  This area is where I have issues with this calculator.

4.  According to my math you still have cash in the deal.  This does not include the missing utilities during the Holding period.

Purchase price $52,000 +

Rehab estimate $28,000 +

Purchase Closing costs $4,600 +

HML Points $2,195 +

Refinance Closing Fees $3,000 +

Holding costs $3,127.59 =

$92,922.59 -

Refinance loan $91,000 =

$1,922.59 Cash remaining in the property 

Again, my problem with this calculator!

5. Cash Flow analysis: Using the 50% Rule is a good start in your analysis. Because you don't know what you don't know. It is much better over estimating expenses than under. Unless you have detailed accurate data from the current owner. That being said here's my 2 cents on your individual expenses. I always use a minimum of 8.34% (one month rent) for Vacancy reserves. If the average vacancy rate for the area is 5% or less, great. You are covered. However, if you have a vacancy that ends up lasting a month (or longer) your cash flow disappears in a hurry. Remember, the money is in reserve. It is not actually spent unless you need it. Your CapEx and Repairs amounts are okay. I always initially start off with 10% CapEx. Once the property is under contract I have it inspected to determine the current condition and life expectancy of all major components and appliances. From that report and in coordination with my GC we decide what to include in the Rehab and what can be deferred. I then adjust my CapEx reserves requirement accordingly. You did not include Property Management as an expense. You should always include it as part of your analysis even if you plan to self manage. If you plan to grow your portfolio you may eventually want a PM Service. If you did not include it in your original analysis it will be difficult adding it later and remain positive cash flow.