BRRRR Deal on a $300,000 After-Repair Value

A property that will appraise at $300,000 after $45,000 of rehab supports a $225,000 refinance at 75%. To get every dollar back you can pay up to about $156,552. The 70% rule says $165,000. At a typical $180,000 purchase, $25,500 stays in the deal.

The $300,000 deal at a $180,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $500 a month in holding costs, rent of $2,550 (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: $243,750 (purchase $180,000, rehab $45,000, closing $3,600, points $3,240, interest $8,910, holding $3,000)
Cash invested: $81,750. Purchase plus rehab is 75% of ARV.
Refinance: $225,000 loan, $56,250 cash out after payoff and $6,750 in costs
Cash left in the deal: $25,500 (69% recovered)
Equity after refinance: $75,000. Equity created: $56,250
New payment $1,535 a month. NOI $18,737. Cash flow $319 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 $156,552, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$165,000	$78,938	$69,750	$9,188	$319
60% of ARV	$180,000	$81,750	$56,250	$25,500	$319
65% of ARV	$195,000	$84,563	$42,750	$41,813	$319
70% of ARV	$210,000	$87,375	$29,250	$58,125	$319
75% of ARV	$225,000	$90,188	$15,750	$74,438	$319

How the refinance LTV changes the outcome

At the $180,000 purchase. Five points of LTV is $15,000 of loan on a $300,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$195,000	$27,150	$54,600	1.17	$2,774
70%	$210,000	$41,700	$40,050	1.09	$1,547
75%	$225,000	$56,250	$25,500	1.02	$319
80%	$240,000	$70,800	$10,950	0.95	-$909

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $180,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$300,000	$225,000	$56,250	$25,500
-5%	$285,000	$213,750	$45,338	$36,413
-10%	$270,000	$202,500	$34,425	$47,325
-15%	$255,000	$191,250	$23,513	$58,238

Run the $300,000 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%$3,600Short-term loan% of price$162,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$3,240

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. $3,000 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%$225,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$6,750

Cash left in the deal

$25,500

Partial

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

$81,750 in, $56,250 out (69% recovered)

All-in cost

Purchase: $180,000
Closing costs: $3,600
Rehab: $45,000
Points and fees: $3,240
Interest, 6 mo: $8,910
Holding costs, 6 mo: $3,000
Total project cost: $243,750
Less short-term loan: -$162,000
Cash invested: $81,750
Purchase + rehab vs ARV70% rule max offer: $165,000: 75%

Refinance

New loan at 75% of ARV: $225,000
Pay off short-term loan: -$162,000
Refinance costs: -$6,750
Cash out: $56,250
Equity after refinanceARV minus new loan: $75,000
Equity createdARV minus total project cost: $56,250

Rental after refinance

Net operating income$29,070 collected, $10,333 expenses: $18,737
Debt service$1,534.90 a month: -$18,419
Annual cash flow: $319
Monthly cash flow: $27
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 $300,000 now: $335,052
Max purchase pricevs $180,000 now: $156,552
Refi LTV neededAbove what lenders offer: 83.8%

$300,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $300,000 ARV?

With $45,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $156,552 returns all your cash. The 70% rule gives $165,000. Above $156,552, every extra dollar of price is a dollar that stays in the deal.

Does a $300,000 BRRRR cash flow after the refinance?

At $2,550 rent and a $225,000 loan at 7.25%, cash flow is $319 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 $300,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $11,250 and leaves that much more cash in the deal. A 10% miss on $300,000 leaves an extra $22,500 in. Model the deal at 5 to 10% below your ARV estimate before you offer.