BRRRR Deal on a $750,000 After-Repair Value

A property that will appraise at $750,000 after $113,000 of rehab supports a $562,500 refinance at 75%. To get every dollar back you can pay up to about $390,782. The 70% rule says $412,000. At a typical $450,000 purchase, $64,400 stays in the deal.

The $750,000 deal at a $450,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $1,275 a month in holding costs, rent of $6,375 (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: $610,025 (purchase $450,000, rehab $113,000, closing $9,000, points $8,100, interest $22,275, holding $7,650)
Cash invested: $205,025. Purchase plus rehab is 75% of ARV.
Refinance: $562,500 loan, $140,625 cash out after payoff and $16,875 in costs
Cash left in the deal: $64,400 (69% recovered)
Equity after refinance: $187,500. Equity created: $139,975
New payment $3,837 a month. NOI $46,844. Cash flow $797 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 $390,782, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$413,000	$198,088	$173,925	$24,163	$797
60% of ARV	$450,000	$205,025	$140,625	$64,400	$797
65% of ARV	$488,000	$212,150	$106,425	$105,725	$797
70% of ARV	$525,000	$219,088	$73,125	$145,963	$797
75% of ARV	$563,000	$226,213	$38,925	$187,288	$797

How the refinance LTV changes the outcome

At the $450,000 purchase. Five points of LTV is $37,500 of loan on a $750,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$487,500	$67,875	$137,150	1.17	$6,936
70%	$525,000	$104,250	$100,775	1.09	$3,866
75%	$562,500	$140,625	$64,400	1.02	$797
80%	$600,000	$177,000	$28,025	0.95	-$2,273

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $450,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$750,000	$562,500	$140,625	$64,400
-5%	$713,000	$534,750	$113,708	$91,318
-10%	$675,000	$506,250	$86,063	$118,963
-15%	$638,000	$478,500	$59,145	$145,880

Run the $750,000 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%$9,000Short-term loan% of price$405,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$8,100

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. $7,650 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%$562,500 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$16,875

Cash left in the deal

$64,400

Partial

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

$205,025 in, $140,625 out (69% recovered)

All-in cost

Purchase: $450,000
Closing costs: $9,000
Rehab: $113,000
Points and fees: $8,100
Interest, 6 mo: $22,275
Holding costs, 6 mo: $7,650
Total project cost: $610,025
Less short-term loan: -$405,000
Cash invested: $205,025
Purchase + rehab vs ARV70% rule max offer: $412,000: 75%

Refinance

New loan at 75% of ARV: $562,500
Pay off short-term loan: -$405,000
Refinance costs: -$16,875
Cash out: $140,625
Equity after refinanceARV minus new loan: $187,500
Equity createdARV minus total project cost: $139,975

Rental after refinance

Net operating income$72,675 collected, $25,832 expenses: $46,844
Debt service$3,837.24 a month: -$46,047
Annual cash flow: $797
Monthly cash flow: $66
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 $750,000 now: $838,522
Max purchase pricevs $450,000 now: $390,782
Refi LTV neededAbove what lenders offer: 83.9%

$750,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $750,000 ARV?

With $113,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $390,782 returns all your cash. The 70% rule gives $412,000. Above $390,782, every extra dollar of price is a dollar that stays in the deal.

Does a $750,000 BRRRR cash flow after the refinance?

At $6,375 rent and a $562,500 loan at 7.25%, cash flow is $797 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 $750,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $28,125 and leaves that much more cash in the deal. A 10% miss on $750,000 leaves an extra $56,250 in. Model the deal at 5 to 10% below your ARV estimate before you offer.