What is the BRRRR formula?

Cash left in the deal equals cash invested minus cash out. Cash invested is purchase, closing, rehab, points, interest and holding costs minus the short-term loan. Cash out is the refinance loan minus the short-term payoff minus refinance costs.

The refinance loan is the after-repair value times the lender's loan-to-value, usually 70 to 75%. Refinance costs run 2 to 4% of the new loan.

Example: a $150,000 purchase, $40,000 rehab, 90% hard money at 11% with 2 points, six-month hold. Total project cost is about $205,800 and cash invested about $70,800. A 75% refinance on a $260,000 appraisal is $195,000. After paying off $135,000 and $5,850 in costs, $54,150 comes back, leaving $16,675 in the deal. To get all cash out, the ARV must be about 1.37 times total cost at 75% LTV and 3% costs.