BRRRR Deal on a $500,000 After-Repair Value

A property that will appraise at $500,000 after $75,000 of rehab supports a $375,000 refinance at 75%. To get every dollar back you can pay up to about $260,828. The 70% rule says $275,000. At a typical $300,000 purchase, $42,600 stays in the deal.

The $500,000 deal at a $300,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $850 a month in holding costs, rent of $4,250 (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: $406,350 (purchase $300,000, rehab $75,000, closing $6,000, points $5,400, interest $14,850, holding $5,100)
Cash invested: $136,350. Purchase plus rehab is 75% of ARV.
Refinance: $375,000 loan, $93,750 cash out after payoff and $11,250 in costs
Cash left in the deal: $42,600 (69% recovered)
Equity after refinance: $125,000. Equity created: $93,650
New payment $2,558 a month. NOI $31,229. Cash flow $531 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 $260,828, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$275,000	$131,663	$116,250	$15,413	$531
60% of ARV	$300,000	$136,350	$93,750	$42,600	$531
65% of ARV	$325,000	$141,038	$71,250	$69,788	$531
70% of ARV	$350,000	$145,725	$48,750	$96,975	$531
75% of ARV	$375,000	$150,413	$26,250	$124,163	$531

How the refinance LTV changes the outcome

At the $300,000 purchase. Five points of LTV is $25,000 of loan on a $500,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$325,000	$45,250	$91,100	1.17	$4,624
70%	$350,000	$69,500	$66,850	1.09	$2,578
75%	$375,000	$93,750	$42,600	1.02	$531
80%	$400,000	$118,000	$18,350	0.95	-$1,515

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $300,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$500,000	$375,000	$93,750	$42,600
-5%	$475,000	$356,250	$75,563	$60,788
-10%	$450,000	$337,500	$57,375	$78,975
-15%	$425,000	$318,750	$39,188	$97,163

Run the $500,000 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%$6,000Short-term loan% of price$270,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$5,400

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. $5,100 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%$375,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$11,250

Cash left in the deal

$42,600

Partial

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

$136,350 in, $93,750 out (69% recovered)

All-in cost

Purchase: $300,000
Closing costs: $6,000
Rehab: $75,000
Points and fees: $5,400
Interest, 6 mo: $14,850
Holding costs, 6 mo: $5,100
Total project cost: $406,350
Less short-term loan: -$270,000
Cash invested: $136,350
Purchase + rehab vs ARV70% rule max offer: $275,000: 75%

Refinance

New loan at 75% of ARV: $375,000
Pay off short-term loan: -$270,000
Refinance costs: -$11,250
Cash out: $93,750
Equity after refinanceARV minus new loan: $125,000
Equity createdARV minus total project cost: $93,650

Rental after refinance

Net operating income$48,450 collected, $17,221 expenses: $31,229
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $531
Monthly cash flow: $44
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 $500,000 now: $558,557
Max purchase pricevs $300,000 now: $260,828
Refi LTV neededAbove what lenders offer: 83.8%

$500,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $500,000 ARV?

With $75,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $260,828 returns all your cash. The 70% rule gives $275,000. Above $260,828, every extra dollar of price is a dollar that stays in the deal.

Does a $500,000 BRRRR cash flow after the refinance?

At $4,250 rent and a $375,000 loan at 7.25%, cash flow is $531 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 $500,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $18,750 and leaves that much more cash in the deal. A 10% miss on $500,000 leaves an extra $37,500 in. Model the deal at 5 to 10% below your ARV estimate before you offer.