Hard Money + BRRRR + Positive Cash flow Analysis

[Albert L.]

Hi folks, 

I've been studying the BRRRR method and would love to run this hypothetical analysis with you to make sure there's nothing I'm missing, especially with the added complexity with using a HML.

POTENTIAL CONCERNS:

• I'm okay with the trade-off with less cash flow given my goals.
• I know it'll be a million times easier to go with the private lender route but I wanted to run numbers to see what it would look like using HML.
• I know it's going to very hard, maybe impossible to find anything with the purchase price so low but again, this is an experiment to make sure I understand how these numbers work

REFINANCE / CASH FLOW ANALYSIS:

https://www.biggerpockets.com/calculators/shared/593575/4c4d609b-475b-4c09-81a1-39f0280f291d

• ARV: 90,000
• NOI: 1,400
• Expenses (PITI + Repairs + Vacancy + CapEx + Utilities + Property Manager) : 1,300
• Cash flow: $100

BUY + REHAB:

• Financing: I'll be using a HML that can finance 90% of acquisition and 90% of rehab. 10.5% interest rate on full note amount, 12 month term. 3% origination fee.
• LTV: 75% but let's use 70% as conservative estimate in case unplanned scenarios pop (i.e, appraisal comes in lower):
• Rehab: 25,000 
• Holding cost: 2,000
• Closing cost: 5,000
• HML cost: 45,000 * 10.5% = 4,725. Let's say it takes us 3 months to rehab and rent out (or at least make it seem like we're about to have a tenant move in). Because we're using HML, I believe we would also be able to bypass the seasoning period typically needed for a conventional loan. 4,725 / 3 = 1,575
• Out of pocket to cover 10% of acquisition and rehab: 2,500 + 2,500 = 5,000 
• Purchase: (90,000 * .70) - 25,000 - 2,000 - 5,000 - 1,575 - 5,000 = 25,000 (rounded up a few hundred to make it an even number). 

Actionable Next Steps:

I need to find a property that will sell for around 25,000. I have some wiggle room with the conservative LTV refinance number and it can of course change depending on what the actual rehab costs are but assuming it's around 25,000.

Is there anything I'm missing here? 

Thanks y'all! 

[Amanda G.]

Hi Albert,

Theory is useful, and the devil is in the details. If you are looking outside of CA, finding a house for 90k is completely possible. However, at least in my market, it isn't going to rent for $1,400.
I realize you were asking about your analysis, but so very much depends on your market. Including guesses on rehab and rent time- some are going to be much slower than 3 month, some deals might be paint/carpet and rented before you blink. 
that said, I think you have the idea, it is now a matter of practicing analysis on actual deals.
Where are you looking?