Updated over 5 years ago on . Most recent reply
Deal Analysis Practice Question
This is a practice deal analysis for BRRRR.
Subject property = 50k.
Rehab estimate with 25% overrun = 31250.
Closing cost = 1500
Purchase cost, cash = 82750.
My ARV calculation = 151632.
After refinancing, how did I become upside down of -$26,085?
I played around with the numbers and I only change the purchase price to 100k then that's where it gave me a positive outcome after refinancing:
It doesn't make sense that I have to purchase the house 50k more than it's asking for just so I can be on a positive side of things when it comes down to refinancing.
Can someone explain what I'm doing wrong, please?
I already appreciate you're reading this.
Thank you.
Most Popular Reply
Hey @Jeremie Torres, welcome to BiggerPockets!
This is one of those situations where being negative isn't a bad thing!
In your first scenario, you're acquiring a property for $50K, doing $31.3K in repairs, and then refinancing to pull $114K out.
Congratulations, that -$26,085 of "Total Cash Invested" just means that you're actually making money on this deal! You're earning $26K in profit!
Your second scenario has you paying $100K ($50K more) and leaves everything else the same. In this case, you're losing money: After you refinance, you'll have $25,415 less in your pocket than you started with! That's a Bad Deal that you would not want to do!
Hope this helps!