How much cash are you willing to leave in a BRRRR deal?

[Hans M.]

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

Hello B.P. community,

I'm trying to land my first property, and I'm curious about your thoughts on this potential deal. My questions are:

1. In order to make the property cash flow at $200 a month (my own criterion for a SFR), I'd be leaving 56% of equity in the deal, $18,000 of my own money. However, I'd be getting a 13% CoC return. Do you think this is reasonable, or with BRRRR should I be aiming at leaving 0$ of my own money in the deal?

2. The ARV will likely be around 105-100k. However, rent in this area will only be 900-950k. So, I'll all-in for over the 1% rule, but after rehab, I'm under the 1% rule. Is this an indicator that this is not a great deal?

Thanks, all!

[Kevin Sobilo]

@Hans M., I think its a reasonable goal to get your money out upon refi, if not MORE! I would focus on monthly cashflow if I was trying to use that money as income to live otherwise I would focus on cash on cash return to see that my money was working hard for me as an investment.

Looking at your calculator, I think you may have been too conservative on a couple numbers. 7% vacancy and 11% cap ex. I think 5% vacancy should be sufficient, and if you just rehabbed a property 11% cap ex seems VERY high. I think 5% maybe even 3% since you just rehabbed it might be more realistic. If you change these, you might get closer to getting your money out upon refi.

I also recommend reviewing your scope of work for a rehab. You can do a lot with a $22k rehab. Maybe you can change your scope of work a little and add almost the same value. Also, consider doing LESS rehab up front. If it isn't going to affect the appraisal for your refi or your rent rate, maybe some items can be done incrementally as tenants turn over.

So, look at some different scenarios with different scopes of work. There is usually more than 1 way to approach a rehab. So, consider some different scenarios and see if one gets you closer to a deal that meets your goals.