BRRRR Deal on a $1,000,000 After-Repair Value

A property that will appraise at $1,000,000 after $150,000 of rehab supports a $750,000 refinance at 75%. To get every dollar back you can pay up to about $521,655. The 70% rule says $550,000. At a typical $600,000 purchase, $85,200 stays in the deal.

The $1,000,000 deal at a $600,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $1,700 a month in holding costs, rent of $8,500 (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: $812,700 (purchase $600,000, rehab $150,000, closing $12,000, points $10,800, interest $29,700, holding $10,200)
Cash invested: $272,700. Purchase plus rehab is 75% of ARV.
Refinance: $750,000 loan, $187,500 cash out after payoff and $22,500 in costs
Cash left in the deal: $85,200 (69% recovered)
Equity after refinance: $250,000. Equity created: $187,300
New payment $5,116 a month. NOI $62,458. Cash flow $1,062 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 $521,655, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$550,000	$263,325	$232,500	$30,825	$1,062
60% of ARV	$600,000	$272,700	$187,500	$85,200	$1,062
65% of ARV	$650,000	$282,075	$142,500	$139,575	$1,062
70% of ARV	$700,000	$291,450	$97,500	$193,950	$1,062
75% of ARV	$750,000	$300,825	$52,500	$248,325	$1,062

How the refinance LTV changes the outcome

At the $600,000 purchase. Five points of LTV is $50,000 of loan on a $1,000,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$650,000	$90,500	$182,200	1.17	$9,248
70%	$700,000	$139,000	$133,700	1.09	$5,155
75%	$750,000	$187,500	$85,200	1.02	$1,062
80%	$800,000	$236,000	$36,700	0.95	-$3,031

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $600,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$1,000,000	$750,000	$187,500	$85,200
-5%	$950,000	$712,500	$151,125	$121,575
-10%	$900,000	$675,000	$114,750	$157,950
-15%	$850,000	$637,500	$78,375	$194,325

Run the $1,000,000 deal yourself

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

1. Buy

Purchase price$Buyer closing costs%$12,000Short-term loan% of price$540,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$10,800

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. $10,200 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%$750,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$22,500

Cash left in the deal

$85,200

Partial

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

$272,700 in, $187,500 out (69% recovered)

All-in cost

Purchase: $600,000
Closing costs: $12,000
Rehab: $150,000
Points and fees: $10,800
Interest, 6 mo: $29,700
Holding costs, 6 mo: $10,200
Total project cost: $812,700
Less short-term loan: -$540,000
Cash invested: $272,700
Purchase + rehab vs ARV70% rule max offer: $550,000: 75%

Refinance

New loan at 75% of ARV: $750,000
Pay off short-term loan: -$540,000
Refinance costs: -$22,500
Cash out: $187,500
Equity after refinanceARV minus new loan: $250,000
Equity createdARV minus total project cost: $187,300

Rental after refinance

Net operating income$96,900 collected, $34,442 expenses: $62,458
Debt service$5,116.32 a month: -$61,396
Annual cash flow: $1,062
Monthly cash flow: $89
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 $1,000,000 now: $1,117,113
Max purchase pricevs $600,000 now: $521,655
Refi LTV neededAbove what lenders offer: 83.8%

$1,000,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $1,000,000 ARV?

With $150,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $521,655 returns all your cash. The 70% rule gives $550,000. Above $521,655, every extra dollar of price is a dollar that stays in the deal.

Does a $1,000,000 BRRRR cash flow after the refinance?

At $8,500 rent and a $750,000 loan at 7.25%, cash flow is $1,062 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 $1,000,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $37,500 and leaves that much more cash in the deal. A 10% miss on $1,000,000 leaves an extra $75,000 in. Model the deal at 5 to 10% below your ARV estimate before you offer.