Help me analyze this BRRR Duplex!

[Pratik P.]

Hey everyone,

We got a lead come in for a duplex that I'm considering taking down myself and holding it. This would be my first rental so I figured it would be good to have the BP folks verify my numbers. 

The owner lives in one unit and spent 8 months dealing with horrible tenants who damaged the place, etc. He's 1000% done with being a landlord and wants to sell quick. If I bought it from him, it would be with the agreement that I rent his unit back to him with a fixed rent rate for 5 years (1200/mo)

So this is the strategy:

1. Buy with hard money. Rent the owner's unit back to him.

2. Rehab the vacant unit and rent it out

3. Cash out refi to payoff the hard money loan and my rehab costs, etc.

Hard Money Loan @ 1point, 9.5% interest. 

Purchase: $170000

Loan: $153,000

Down: $17,000 (10%)

Closing costs/loan fees: $6100

Rehab Cost: $30,000

Holding cost for 6mo: $7200

Total Upfront Cost: $60,300

Cash out Refi @ 5.375% 30year Cash out 70% LTV

Expected ARV: $300,000

Cash out(New loan): $210,000

Refi costs/fees: $3100

Net Cash Received at Refi: $206,900

**With this cash, the original hard money loan of 153k will be paid off with $53,900 remaining. My upfront cost was $60,300. So that's a grand total of $6,400 of my money I'll have in the property.

Cash Flow Analysis
Gross Income: $2300 (1200 and 1100)

Mortgage payment: $1176
Property Tax: $208

Insurance: $100

Vacancy: $115

Maintenance: $115

Total Monthly Expense: $1714

Cash Flow = $586/mo or $7032 annually.

So in one year, I'll get my $6400 back and will have nothing in the deal while getting 7k annual income and about 90k of equity in this property left. It sounds like a good deal to me but let me know what you think and if I'm not seeing some other expenses. 

Thank you for your time!!

[Jaysen Medhurst]

Hi, @Pratik P., first thing that stands out to me is your expected ARV. Do you have recent, sold comps that support a $300k ARV? That's a lot of value to add for only $30k of renovations. Few other things to look at:

1. If you do, in fact, double the the ARV, you can expect for your tax bill to double after your next assessment. I'd dig into the current assessment and the assessments of the comps you're using for your ARV.
2. Maintenance is a little low. I'd figure 7.5% of GSR
3. You should figure in CapEx. I like 7.5%, but you might be able to go a little lower considering the renovations you're doing.
4. Factor for management (10%), even if you will self-manage in the begining.
5. What about water and sewer?
6. Any shared utilities, like exterior or hallway lights?
7. Why only $1100 for the other unit? Can you get $1200 like the current-owner unit or even a little more?

Taking the above into account, my back-of-the-envelope math shows you closer to $100/month cash flow.