Hi @Jaysen Medhurst, thanks for the reply. The average Cap Rate for the properties that we are pursuing run about 13%. That looks great on paper. Below are the numbers.
The local bank that I work with will loan 85% of the property value or 85% of the purchase price, which ever is lower. I believe the ARV of this property will be about $82K. So to purchase this I will need 15% down of the $50K purchase price ($7500). I also have estimated about $13,500 in rehab. The rehab and down payment will come from a HELOC that will result in a monthly payment of $210. The mortgage of $42,500 will be at 4.99% for 20 yrs. This will give me a mortgage payment of $280.25. So in looking at the monthly numbers above, we have $550.22 of net income minus the $280.25 mortgage and the $210 payment for the HELOC. This yields $59.97 of income after all expenses. One last budgeted expense that I did not include yet is Cap Ex. If I use a Cap Ex rate of 10%, that will be $100 budgeted for capital expenditures, which will turn my net income of $59.97 into a $40.03 loss each month.
This is my dilemma. I realize that Cap Ex is money in the bank, until you have spend it, as well as some of the repair costs that I show above. Those are projected costs. The 10% property management fee ($100/mth) will also be used to pay myself at least for the first couple of properties. If I had cash for the down payment and rehab costs and didn't need to utilize the HELOC for this purchase, I would save $210 / month and the cash flow would look much better.
I have thought about excluding the costs of the HELOC from the calculations of the initial analysis. My thought is that the HELOC will be paid off with 3-5 years and will not have a long-term impact like the mortgage.
I have also thought about BRRRRing the property. I could purchase, rehab, rent and then refi based on the value of property. This would allow me to pay off the HELOC as well as hopefully pull some additional equity to use for the next property purchase.
Again, I am new to REI and I need some advice on how to determine if a property is worth purchasing when the HELOC payment is deflating the cash flow.
Thanks for the help!!