BRRRR Deal on a $200,000 After-Repair Value

A property that will appraise at $200,000 after $30,000 of rehab supports a $150,000 refinance at 75%. To get every dollar back you can pay up to about $104,276. The 70% rule says $110,000. At a typical $120,000 purchase, $17,100 stays in the deal.

The $200,000 deal at a $120,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $350 a month in holding costs, rent of $1,700 (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: $162,600 (purchase $120,000, rehab $30,000, closing $2,400, points $2,160, interest $5,940, holding $2,100)
Cash invested: $54,600. Purchase plus rehab is 75% of ARV.
Refinance: $150,000 loan, $37,500 cash out after payoff and $4,500 in costs
Cash left in the deal: $17,100 (69% recovered)
Equity after refinance: $50,000. Equity created: $37,400
New payment $1,023 a month. NOI $12,492. Cash flow $212 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 $104,276, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$110,000	$52,725	$46,500	$6,225	$212
60% of ARV	$120,000	$54,600	$37,500	$17,100	$212
65% of ARV	$130,000	$56,475	$28,500	$27,975	$212
70% of ARV	$140,000	$58,350	$19,500	$38,850	$212
75% of ARV	$150,000	$60,225	$10,500	$49,725	$212

How the refinance LTV changes the outcome

At the $120,000 purchase. Five points of LTV is $10,000 of loan on a $200,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$130,000	$18,100	$36,500	1.17	$1,850
70%	$140,000	$27,800	$26,800	1.09	$1,031
75%	$150,000	$37,500	$17,100	1.02	$212
80%	$160,000	$47,200	$7,400	0.95	-$606

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $120,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$200,000	$150,000	$37,500	$17,100
-5%	$190,000	$142,500	$30,225	$24,375
-10%	$180,000	$135,000	$22,950	$31,650
-15%	$170,000	$127,500	$15,675	$38,925

Run the $200,000 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%$2,400Short-term loan% of price$108,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$2,160

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. $2,100 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%$150,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$4,500

Cash left in the deal

$17,100

Partial

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

$54,600 in, $37,500 out (69% recovered)

All-in cost

Purchase: $120,000
Closing costs: $2,400
Rehab: $30,000
Points and fees: $2,160
Interest, 6 mo: $5,940
Holding costs, 6 mo: $2,100
Total project cost: $162,600
Less short-term loan: -$108,000
Cash invested: $54,600
Purchase + rehab vs ARV70% rule max offer: $110,000: 75%

Refinance

New loan at 75% of ARV: $150,000
Pay off short-term loan: -$108,000
Refinance costs: -$4,500
Cash out: $37,500
Equity after refinanceARV minus new loan: $50,000
Equity createdARV minus total project cost: $37,400

Rental after refinance

Net operating income$19,380 collected, $6,888 expenses: $12,492
Debt service$1,023.26 a month: -$12,279
Annual cash flow: $212
Monthly cash flow: $18
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 $200,000 now: $223,505
Max purchase pricevs $120,000 now: $104,276
Refi LTV neededAbove what lenders offer: 83.8%

$200,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $200,000 ARV?

With $30,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $104,276 returns all your cash. The 70% rule gives $110,000. Above $104,276, every extra dollar of price is a dollar that stays in the deal.

Does a $200,000 BRRRR cash flow after the refinance?

At $1,700 rent and a $150,000 loan at 7.25%, cash flow is $212 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 $200,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $7,500 and leaves that much more cash in the deal. A 10% miss on $200,000 leaves an extra $15,000 in. Model the deal at 5 to 10% below your ARV estimate before you offer.