We're in the process of doing our first BRRRR deal with a HML. They are funding part of the purchase + rehab. Here are the numbers
Purchase Price: $85,000
LTV: 70%
Down Payment: $25,500 (30% down payment)
Rehab Loan: $20,000 (this will be received back in phases, on a draw Total Loan Amount: $79,500
Hard Money Costs:
Interest Only: 11.99%
Points (3%): $2,385
Prepaid Interest (3%) $2,385
Underwriting Fee $2,995
Processing Fee: $995
Lender Attorney Fee: $1,730
Total HML Costs: $10,490
Estimated Cash to Close: Down Pmt + HML Costs = $35,490
However, this didn’t include other transaction costs. After adding in:
Deed Recording
Title Insurance
Mortgage Tax
School Tax Escrow
Attorney Fee
Actual cash to close: ~$43,000
We did not expect an extra $7500 to close. Our attorney thinks the HML's fees are too high, while the HML believes the taxes are too much. We're at a standstill.
Total HML Costs: ~$100,000 (incl. Interest paid during 2-month rehab)
Total Investment: $100,000 + $25,000 down payment = $125,000
Other details:
ARV: $150,000
*As-is Appraisal: $112,000
Time to Rehab: 2 months
Final Remarks:
*The As-is appraisal of $112,000 with a purchase price of $85,000 gives us $27,000 of instant equity in the deal. We think it's a nice buffer to cushion against the cost of doing a BRRRR in today's market.
We're hoping to cash out refinance for $112,500. After paying off the HML, we'll leave about half of our down payment in the deal, which still seems like a good deal. Side note: Interestingly, 75% of the ARV is about the same as the current as-is appraised value.
What do you think about this deal? Where are the red flags in the numbers if this isn’t a good deal? Also, I’m confused by the way the rehab loan works. It seems that we must pay it upfront but then get it back as a draw. Does that mean we add the $20k and then subtract it from our total costs?
Thanks in advance for the help analyzing this deal!
