BRRRR Deal on a $150,000 After-Repair Value

A property that will appraise at $150,000 after $23,000 of rehab supports a $112,500 refinance at 75%. To get every dollar back you can pay up to about $77,816. The 70% rule says $82,000. At a typical $90,000 purchase, $13,250 stays in the deal.

The $150,000 deal at a $90,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $250 a month in holding costs, rent of $1,275 (0.85% of ARV), taxes at 1.2% and insurance at 0.5% of ARV, and a 75% refinance at 7.25% with 3% costs.

Total project cost: $122,375 (purchase $90,000, rehab $23,000, closing $1,800, points $1,620, interest $4,455, holding $1,500)
Cash invested: $41,375. Purchase plus rehab is 75% of ARV.
Refinance: $112,500 loan, $28,125 cash out after payoff and $3,375 in costs
Cash left in the deal: $13,250 (68% recovered)
Equity after refinance: $37,500. Equity created: $27,625
New payment $767 a month. NOI $9,369. Cash flow $159 a year. DSCR 1.02.

How the purchase price changes the outcome

Same ARV, same rehab, different price. The line where cash left hits zero is at about $77,816, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$83,000	$40,063	$34,425	$5,638	$159
60% of ARV	$90,000	$41,375	$28,125	$13,250	$159
65% of ARV	$98,000	$42,875	$20,925	$21,950	$159
70% of ARV	$105,000	$44,188	$14,625	$29,563	$159
75% of ARV	$113,000	$45,688	$7,425	$38,263	$159

How the refinance LTV changes the outcome

At the $90,000 purchase. Five points of LTV is $7,500 of loan on a $150,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$97,500	$13,575	$27,800	1.17	$1,387
70%	$105,000	$20,850	$20,525	1.09	$773
75%	$112,500	$28,125	$13,250	1.02	$159
80%	$120,000	$35,400	$5,975	0.95	-$455

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $90,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$150,000	$112,500	$28,125	$13,250
-5%	$143,000	$107,250	$23,033	$18,343
-10%	$135,000	$101,250	$17,213	$24,163
-15%	$128,000	$96,000	$12,120	$29,255

Run the $150,000 deal yourself

Preloaded with the assumptions above. Change the price, rehab, rent or refinance terms to match your deal.

Closing costs, short-term financing, holding, rent and the refinance

1. Buy

Purchase price$Buyer closing costs%$1,800Short-term loan% of price$81,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$1,620

2. Rehab and hold

Rehab budget$Include a contingency. Paid in cash here.Months to refinancemoRehab + lease-up + lender seasoningMonthly holding costs$Taxes, insurance, utilities. $1,500 over the hold.

3. Rent

Monthly rent after rehab$Vacancy%Annual property taxes$After reassessmentAnnual insurance$HOA (monthly)$

4. Refinance

After-repair value (ARV)$What the appraiser will say, not what you hopeRefinance LTV%$112,500 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$3,375

Cash left in the deal

$13,250

Partial

Partial. Half to three quarters of your cash comes back. Still a rental with a discount on the cash left in.

$41,375 in, $28,125 out (68% recovered)

All-in cost

Purchase: $90,000
Closing costs: $1,800
Rehab: $23,000
Points and fees: $1,620
Interest, 6 mo: $4,455
Holding costs, 6 mo: $1,500
Total project cost: $122,375
Less short-term loan: -$81,000
Cash invested: $41,375
Purchase + rehab vs ARV70% rule max offer: $82,000: 75%

Refinance

New loan at 75% of ARV: $112,500
Pay off short-term loan: -$81,000
Refinance costs: -$3,375
Cash out: $28,125
Equity after refinanceARV minus new loan: $37,500
Equity createdARV minus total project cost: $27,625

Rental after refinance

Net operating income$14,535 collected, $5,166 expenses: $9,369
Debt service$767.45 a month: -$9,209
Annual cash flow: $159
Monthly cash flow: $13
Cash on cash (on cash left): 1.2%
DSCRNOI / debt service. Lenders want 1.0 to 1.25.: 1.02
Cap rate on cost6.2% on ARV: 7.7%

To get all your cash back

ARV neededvs $150,000 now: $168,213
Max purchase pricevs $90,000 now: $77,816
Refi LTV neededAbove what lenders offer: 84.1%

$150,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $150,000 ARV?

With $23,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $77,816 returns all your cash. The 70% rule gives $82,000. Above $77,816, every extra dollar of price is a dollar that stays in the deal.

Does a $150,000 BRRRR cash flow after the refinance?

At $1,275 rent and a $112,500 loan at 7.25%, cash flow is $159 a year with a DSCR of 1.02. That is thin. Expect a rate adjustment or a lower LTV from some lenders.

What if the appraisal on a $150,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $5,625 and leaves that much more cash in the deal. A 10% miss on $150,000 leaves an extra $11,250 in. Model the deal at 5 to 10% below your ARV estimate before you offer.