Single Family BRRR Deal

[Zach Adams]

Hi All,

Today I toured my first property which was a 2 bed 1 bath foreclosure with a list price of $125k. The property is good structurally (sturdy foundation, good roof, but I will get it inspected), but the inside needs a lot of work. The largest issue is that the bathroom is connected to the kitchen so we need to relocate that as well as possibly adding a bedroom in the basement (which we will refinish). Our offer is going to be $50k (obviously this hasn't been confirmed), closing costs are $7k and I have planned a $50k renovation budget (this may be inaccurate until I get a friend to estimate costs). We expect the ARV to be $160-$180k, rent is $1400, Operating costs per month- vacancy $70, capex $70, repairs $70, taxes $140, insurance $120 which is abo $470. If we refinance after 12 months with a loan of $133k, fees $7k, 5% interest, we expect to get all of our investment back (based on the BRRRR calculator). Does this seem like a possible deal given the numbers or am I wrong somewhere? This is one of the first deals that I ran the numbers on and it seems pretty good, but I am new and slightly concerned about the amount of rehab even though I have good connections.

Thanks for any insight. 

[Jaysen Medhurst]

@Zach Adams, for the time being, let's assume you can get it for $50k and do the reno for another $50.

• I'd be a little nervous about only allocating 10% combined for CapEx and Repairs. Are you replacing most of the mechanicals, appliances, roof, etc? If not, those CapEx items are still hanging over your head and you have to plan for them. If you are addressing most of them, you can probably start at 10% and slowly increase those reserves over time. If you plan to hold long term, it will all even out.
• You're not accounting for Management (10-12%). Always include Management in your underwriting, even if you plan to self-manage at first.

My underwriting (admittedly conservative) puts your cash flow at $30-100/month after refi, depending on how much you put aside in reserves. At $30, I'd be pretty nervous. At $100, with a return of all your capital...maybe.