BRRRR Deal on a $450,000 After-Repair Value

A property that will appraise at $450,000 after $68,000 of rehab supports a $337,500 refinance at 75%. To get every dollar back you can pay up to about $234,230. The 70% rule says $247,000. At a typical $270,000 purchase, $38,900 stays in the deal.

The $450,000 deal at a $270,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $775 a month in holding costs, rent of $3,825 (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: $366,275 (purchase $270,000, rehab $68,000, closing $5,400, points $4,860, interest $13,365, holding $4,650)
Cash invested: $123,275. Purchase plus rehab is 75% of ARV.
Refinance: $337,500 loan, $84,375 cash out after payoff and $10,125 in costs
Cash left in the deal: $38,900 (68% recovered)
Equity after refinance: $112,500. Equity created: $83,725
New payment $2,302 a month. NOI $28,106. Cash flow $478 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 $234,230, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$248,000	$119,150	$104,175	$14,975	$478
60% of ARV	$270,000	$123,275	$84,375	$38,900	$478
65% of ARV	$293,000	$127,588	$63,675	$63,913	$478
70% of ARV	$315,000	$131,713	$43,875	$87,838	$478
75% of ARV	$338,000	$136,025	$23,175	$112,850	$478

How the refinance LTV changes the outcome

At the $270,000 purchase. Five points of LTV is $22,500 of loan on a $450,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$292,500	$40,725	$82,550	1.17	$4,162
70%	$315,000	$62,550	$60,725	1.09	$2,320
75%	$337,500	$84,375	$38,900	1.02	$478
80%	$360,000	$106,200	$17,075	0.95	-$1,364

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $270,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$450,000	$337,500	$84,375	$38,900
-5%	$428,000	$321,000	$68,370	$54,905
-10%	$405,000	$303,750	$51,638	$71,638
-15%	$383,000	$287,250	$35,633	$87,643

Run the $450,000 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%$5,400Short-term loan% of price$243,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$4,860

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. $4,650 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%$337,500 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$10,125

Cash left in the deal

$38,900

Partial

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

$123,275 in, $84,375 out (68% recovered)

All-in cost

Purchase: $270,000
Closing costs: $5,400
Rehab: $68,000
Points and fees: $4,860
Interest, 6 mo: $13,365
Holding costs, 6 mo: $4,650
Total project cost: $366,275
Less short-term loan: -$243,000
Cash invested: $123,275
Purchase + rehab vs ARV70% rule max offer: $247,000: 75%

Refinance

New loan at 75% of ARV: $337,500
Pay off short-term loan: -$243,000
Refinance costs: -$10,125
Cash out: $84,375
Equity after refinanceARV minus new loan: $112,500
Equity createdARV minus total project cost: $83,725

Rental after refinance

Net operating income$43,605 collected, $15,499 expenses: $28,106
Debt service$2,302.34 a month: -$27,628
Annual cash flow: $478
Monthly cash flow: $40
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 $450,000 now: $503,471
Max purchase pricevs $270,000 now: $234,230
Refi LTV neededAbove what lenders offer: 83.9%

$450,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $450,000 ARV?

With $68,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $234,230 returns all your cash. The 70% rule gives $247,000. Above $234,230, every extra dollar of price is a dollar that stays in the deal.

Does a $450,000 BRRRR cash flow after the refinance?

At $3,825 rent and a $337,500 loan at 7.25%, cash flow is $478 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 $450,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $16,875 and leaves that much more cash in the deal. A 10% miss on $450,000 leaves an extra $33,750 in. Model the deal at 5 to 10% below your ARV estimate before you offer.