BRRRR Deal on a $350,000 After-Repair Value

A property that will appraise at $350,000 after $53,000 of rehab supports a $262,500 refinance at 75%. To get every dollar back you can pay up to about $182,092. The 70% rule says $192,000. At a typical $210,000 purchase, $30,350 stays in the deal.

The $350,000 deal at a $210,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $600 a month in holding costs, rent of $2,975 (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: $284,975 (purchase $210,000, rehab $53,000, closing $4,200, points $3,780, interest $10,395, holding $3,600)
Cash invested: $95,975. Purchase plus rehab is 75% of ARV.
Refinance: $262,500 loan, $65,625 cash out after payoff and $7,875 in costs
Cash left in the deal: $30,350 (68% recovered)
Equity after refinance: $87,500. Equity created: $65,025
New payment $1,791 a month. NOI $21,860. Cash flow $372 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 $182,092, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$193,000	$92,788	$80,925	$11,863	$372
60% of ARV	$210,000	$95,975	$65,625	$30,350	$372
65% of ARV	$228,000	$99,350	$49,425	$49,925	$372
70% of ARV	$245,000	$102,538	$34,125	$68,413	$372
75% of ARV	$263,000	$105,913	$17,925	$87,988	$372

How the refinance LTV changes the outcome

At the $210,000 purchase. Five points of LTV is $17,500 of loan on a $350,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$227,500	$31,675	$64,300	1.17	$3,237
70%	$245,000	$48,650	$47,325	1.09	$1,804
75%	$262,500	$65,625	$30,350	1.02	$372
80%	$280,000	$82,600	$13,375	0.95	-$1,061

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $210,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$350,000	$262,500	$65,625	$30,350
-5%	$333,000	$249,750	$53,258	$42,718
-10%	$315,000	$236,250	$40,163	$55,813
-15%	$298,000	$223,500	$27,795	$68,180

Run the $350,000 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%$4,200Short-term loan% of price$189,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$3,780

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. $3,600 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%$262,500 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$7,875

Cash left in the deal

$30,350

Partial

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

$95,975 in, $65,625 out (68% recovered)

All-in cost

Purchase: $210,000
Closing costs: $4,200
Rehab: $53,000
Points and fees: $3,780
Interest, 6 mo: $10,395
Holding costs, 6 mo: $3,600
Total project cost: $284,975
Less short-term loan: -$189,000
Cash invested: $95,975
Purchase + rehab vs ARV70% rule max offer: $192,000: 75%

Refinance

New loan at 75% of ARV: $262,500
Pay off short-term loan: -$189,000
Refinance costs: -$7,875
Cash out: $65,625
Equity after refinanceARV minus new loan: $87,500
Equity createdARV minus total project cost: $65,025

Rental after refinance

Net operating income$33,915 collected, $12,055 expenses: $21,860
Debt service$1,790.71 a month: -$21,489
Annual cash flow: $372
Monthly cash flow: $31
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 $350,000 now: $391,718
Max purchase pricevs $210,000 now: $182,092
Refi LTV neededAbove what lenders offer: 83.9%

$350,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $350,000 ARV?

With $53,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $182,092 returns all your cash. The 70% rule gives $192,000. Above $182,092, every extra dollar of price is a dollar that stays in the deal.

Does a $350,000 BRRRR cash flow after the refinance?

At $2,975 rent and a $262,500 loan at 7.25%, cash flow is $372 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 $350,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $13,125 and leaves that much more cash in the deal. A 10% miss on $350,000 leaves an extra $26,250 in. Model the deal at 5 to 10% below your ARV estimate before you offer.