Closing Costs

Closing costs are the fees paid to complete a real estate transaction: lender fees and points, appraisal, title insurance, escrow and recording. A BRRRR pays them twice, once at the purchase and once at the refinance, and both sets are cash the refinance has to return before any comes back to you.

On the default deal, buyer closing costs of 2% on $150,000 are $3,000, and refinance costs of 3% on the $195,000 loan are $5,850. With $2,700 of hard money points, that is about $11,500 of transaction cost on a $260,000 property, roughly 4.4% of ARV.

These are the soft costs the 70% rule leaves room for, together with holding interest and carrying costs. They are also why buying at exactly 70% of ARV all-in leaves a little cash in the deal: a 75% refinance leaves 5% of ARV for soft costs, and on a financed six-month deal they run 5 to 6%.

Further reading: Closing Costs on Wikipedia.