BRRRR Deal on a $600,000 After-Repair Value

A property that will appraise at $600,000 after $90,000 of rehab supports a $450,000 refinance at 75%. To get every dollar back you can pay up to about $312,966. The 70% rule says $330,000. At a typical $360,000 purchase, $51,150 stays in the deal.

The $600,000 deal at a $360,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $1,025 a month in holding costs, rent of $5,100 (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: $487,650 (purchase $360,000, rehab $90,000, closing $7,200, points $6,480, interest $17,820, holding $6,150)
Cash invested: $163,650. Purchase plus rehab is 75% of ARV.
Refinance: $450,000 loan, $112,500 cash out after payoff and $13,500 in costs
Cash left in the deal: $51,150 (69% recovered)
Equity after refinance: $150,000. Equity created: $112,350
New payment $3,070 a month. NOI $37,475. Cash flow $637 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 $312,966, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$330,000	$158,025	$139,500	$18,525	$637
60% of ARV	$360,000	$163,650	$112,500	$51,150	$637
65% of ARV	$390,000	$169,275	$85,500	$83,775	$637
70% of ARV	$420,000	$174,900	$58,500	$116,400	$637
75% of ARV	$450,000	$180,525	$31,500	$149,025	$637

How the refinance LTV changes the outcome

At the $360,000 purchase. Five points of LTV is $30,000 of loan on a $600,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$390,000	$54,300	$109,350	1.17	$5,549
70%	$420,000	$83,400	$80,250	1.09	$3,093
75%	$450,000	$112,500	$51,150	1.02	$637
80%	$480,000	$141,600	$22,050	0.95	-$1,819

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $360,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$600,000	$450,000	$112,500	$51,150
-5%	$570,000	$427,500	$90,675	$72,975
-10%	$540,000	$405,000	$68,850	$94,800
-15%	$510,000	$382,500	$47,025	$116,625

Run the $600,000 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%$7,200Short-term loan% of price$324,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$6,480

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. $6,150 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%$450,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$13,500

Cash left in the deal

$51,150

Partial

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

$163,650 in, $112,500 out (69% recovered)

All-in cost

Purchase: $360,000
Closing costs: $7,200
Rehab: $90,000
Points and fees: $6,480
Interest, 6 mo: $17,820
Holding costs, 6 mo: $6,150
Total project cost: $487,650
Less short-term loan: -$324,000
Cash invested: $163,650
Purchase + rehab vs ARV70% rule max offer: $330,000: 75%

Refinance

New loan at 75% of ARV: $450,000
Pay off short-term loan: -$324,000
Refinance costs: -$13,500
Cash out: $112,500
Equity after refinanceARV minus new loan: $150,000
Equity createdARV minus total project cost: $112,350

Rental after refinance

Net operating income$58,140 collected, $20,665 expenses: $37,475
Debt service$3,069.79 a month: -$36,838
Annual cash flow: $637
Monthly cash flow: $53
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 $600,000 now: $670,309
Max purchase pricevs $360,000 now: $312,966
Refi LTV neededAbove what lenders offer: 83.8%

$600,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $600,000 ARV?

With $90,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $312,966 returns all your cash. The 70% rule gives $330,000. Above $312,966, every extra dollar of price is a dollar that stays in the deal.

Does a $600,000 BRRRR cash flow after the refinance?

At $5,100 rent and a $450,000 loan at 7.25%, cash flow is $637 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 $600,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $22,500 and leaves that much more cash in the deal. A 10% miss on $600,000 leaves an extra $45,000 in. Model the deal at 5 to 10% below your ARV estimate before you offer.