BRRRR Deal on a $250,000 After-Repair Value

A property that will appraise at $250,000 after $38,000 of rehab supports a $187,500 refinance at 75%. To get every dollar back you can pay up to about $129,954. The 70% rule says $137,000. At a typical $150,000 purchase, $21,800 stays in the deal.

The $250,000 deal at a $150,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $425 a month in holding costs, rent of $2,125 (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: $203,675 (purchase $150,000, rehab $38,000, closing $3,000, points $2,700, interest $7,425, holding $2,550)
Cash invested: $68,675. Purchase plus rehab is 75% of ARV.
Refinance: $187,500 loan, $46,875 cash out after payoff and $5,625 in costs
Cash left in the deal: $21,800 (68% recovered)
Equity after refinance: $62,500. Equity created: $46,325
New payment $1,279 a month. NOI $15,615. Cash flow $266 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 $129,954, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$138,000	$66,425	$57,675	$8,750	$266
60% of ARV	$150,000	$68,675	$46,875	$21,800	$266
65% of ARV	$163,000	$71,113	$35,175	$35,938	$266
70% of ARV	$175,000	$73,363	$24,375	$48,988	$266
75% of ARV	$188,000	$75,800	$12,675	$63,125	$266

How the refinance LTV changes the outcome

At the $150,000 purchase. Five points of LTV is $12,500 of loan on a $250,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$162,500	$22,625	$46,050	1.17	$2,312
70%	$175,000	$34,750	$33,925	1.09	$1,289
75%	$187,500	$46,875	$21,800	1.02	$266
80%	$200,000	$59,000	$9,675	0.95	-$758

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $150,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$250,000	$187,500	$46,875	$21,800
-5%	$238,000	$178,500	$38,145	$30,530
-10%	$225,000	$168,750	$28,688	$39,988
-15%	$213,000	$159,750	$19,958	$48,718

Run the $250,000 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%$3,000Short-term loan% of price$135,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$2,700

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. $2,550 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%$187,500 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$5,625

Cash left in the deal

$21,800

Partial

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

$68,675 in, $46,875 out (68% recovered)

All-in cost

Purchase: $150,000
Closing costs: $3,000
Rehab: $38,000
Points and fees: $2,700
Interest, 6 mo: $7,425
Holding costs, 6 mo: $2,550
Total project cost: $203,675
Less short-term loan: -$135,000
Cash invested: $68,675
Purchase + rehab vs ARV70% rule max offer: $137,000: 75%

Refinance

New loan at 75% of ARV: $187,500
Pay off short-term loan: -$135,000
Refinance costs: -$5,625
Cash out: $46,875
Equity after refinanceARV minus new loan: $62,500
Equity createdARV minus total project cost: $46,325

Rental after refinance

Net operating income$24,225 collected, $8,611 expenses: $15,615
Debt service$1,279.08 a month: -$15,349
Annual cash flow: $266
Monthly cash flow: $22
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 $250,000 now: $279,966
Max purchase pricevs $150,000 now: $129,954
Refi LTV neededAbove what lenders offer: 84.0%

$250,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $250,000 ARV?

With $38,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $129,954 returns all your cash. The 70% rule gives $137,000. Above $129,954, every extra dollar of price is a dollar that stays in the deal.

Does a $250,000 BRRRR cash flow after the refinance?

At $2,125 rent and a $187,500 loan at 7.25%, cash flow is $266 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 $250,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $9,375 and leaves that much more cash in the deal. A 10% miss on $250,000 leaves an extra $18,750 in. Model the deal at 5 to 10% below your ARV estimate before you offer.