Help with BRRRR Analysis please

[Alexandra Sales]

I'd love your input and help on this BRRRR analysis. I've used to BP calculator several times, but am still not sure if I am doing it correctly.

2 bed/ 2 ba (however extra "den" can be converted into another bedroom)

Asking Price: $169,000 .... From previous posts/advice states offer price should be: (ARV x 70%) - Rehab

Rehab: $40,000 (I am estimating on a small property 1,056 sq ft - needs to be fully gutted) 

From analysis: Offer $114,000 (?? seems very low from asking)

20% down

ARV (compared to comps) $220,000

Refinance in 6 months, 30 year amort. 

4.5% Interest (estimated since it is an investment property) 

Rent: $1400 - All utilities paid by tenant 

I am more confused on the purchase price/offer price. Offering 67% of asking price seems very low? The home will need to be gutted, tear down walls/add walls/cosmetic touches etc. 

The first loan will be $92,000 (with 20% down of $114K) and refinance loan will be $154,000 (70% of $220K)? If that is correct, I will receive $62,000 back? If all numbers done correctly. 

Please let me know if I am not understanding this correctly. I appreciate it! 

[Jaysen Medhurst]

Hi @Alexandra Sales. You've got the basic concept down. The main part you're missing is a full rental analysis, which would show you that this is probably not a great rental. $1400 rent on a $220k house ain't gonna work. You'll be in the red after accounting for vacancy, repairs, CapEx, management, taxes, and insurance.

• With a BRRRR you can push to 75% of ARV, if the deal is otherwise solid.
• Don't get hung up on what percentage of the asking price you're offering. Asking price has no bearing on the deal. Only thing that matters are your numbers. If you can pay $114k and they won't (can't) accept that, who cares? Move on.
• A full gut reno at only $40/sq ft is probably pretty optimistic. I looked at an 8-unit a while back that was already gutted and contractors were quoting me ~$100/sq ft. That did need all new mechanicals, though.

Your financing numbers are a little jumbled. In your example:

• Purchase for $114k ($23k down, $91k financed)
  Renovation for $40k (how are you financing this?)
  All-In for $154k (you'll have some holding/closing cost, too)
• Refi at $220k, 70% LTV = Loan of $154k that pays off the first loan, renovation costs, and returns all of your capital.

If you can nail down your reno numbers, this may be a good flip.