How do you calculate cash out on a BRRRR?

Refinance loan minus the payoff of the short-term loan minus refinance closing costs. The refinance loan is the appraised value times the lender's LTV. On a $260,000 ARV at 75% with a $135,000 hard money payoff and $5,850 in costs, cash out is $54,150.

How do you calculate cash left in a BRRRR deal?

Cash invested minus cash out. Cash invested is everything you paid out of pocket: the part of the purchase not covered by the short-term loan, closing costs, rehab, points, interest and holding costs. If cash out exceeds cash invested, cash left is negative and you pulled out more than you spent.

What ARV do I need to get all my money back?

Total project cost divided by the refinance LTV and by one minus the refinance closing percentage. With 75% LTV and 3% costs, ARV needed is total cost divided by 0.7275, about 1.37 times the total cost.

How is BRRRR cash on cash return calculated?

Annual cash flow on the new loan divided by cash left in the deal. If nothing is left and cash flow is positive, the return is infinite. If cash flow is negative, the property costs you money every month regardless of what the refinance returned.

BRRRR Formula | Calculate Cash Out, Cash Left and Cash Flow

A BRRRR deal is one calculation with three stages: what the project cost, what the refinance returned, and what the rental earns afterward. Each stage feeds the next. Here is every line, followed by the three solvers that turn the math into an offer.

Stage 1: total project cost and cash invested

Total project cost = purchase + closing costs + rehab + points + holding interest + holding costs

Cash invested = total project cost − short-term loan

Purchase and rehab are the big lines. The rest are the ones investors forget.

Buyer closing costs: 1.5 to 3% of price.
Points and fees on the hard money or bridge loan: 1 to 3% of the loan.
Holding interest: the short-term loan is interest-only, so loan × annual rate / 12 × months.
Holding costs: taxes, insurance, utilities and lawn care while the property is empty. Typically 0.15 to 0.2% of ARV per month.

The short-term loan pays for part of the purchase, so it is not your cash. Everything else is.

Example: $150,000 purchase, $3,000 closing, $40,000 rehab, a $135,000 loan at 11% with 2 points ($2,700), six months of interest ($7,425) and holding ($2,700). Total project cost $205,825. Cash invested $70,825.

Stage 2: refinance and cash out

Refinance loan = ARV × refinance LTV

Cash out = refinance loan − short-term loan payoff − refinance closing costs

Cash left in deal = cash invested − cash out

Recovery = cash out / cash invested

ARV is what the appraiser says the finished, leased property is worth. Refinance LTV is what the lender will lend against it, typically 70 to 75%, occasionally 80% on a DSCR loan with a strong ratio. Refinance closing costs run 2 to 4% of the new loan.

Example: $260,000 × 75% = $195,000. Minus $135,000 payoff, minus $5,850 in costs: $54,150 cash out. $70,825 − $54,150 = $16,675 left in. Recovery 76%.

Two equity figures fall out of this stage. Equity after refinance is ARV minus the new loan ($65,000). Equity created is ARV minus total project cost ($54,175), the value you added by buying right and renovating.

Stage 3: the rental on the new loan

NOI = rent × 12 × (1 − vacancy) − taxes − insurance − HOA − (maintenance + capex + management) × collected rent

Cash flow = NOI − annual payment on the refinance loan

Cash on cash = cash flow / cash left in deal

DSCR = NOI / annual debt service

Example: $2,300 rent, 5% vacancy, $3,000 taxes, $1,300 insurance, 18% of collected rent for maintenance, reserves and management. NOI about $17,200. Payment on $195,000 at 7.25% over 30 years is $1,330 a month, $15,963 a year. Cash flow about $1,240. Cash on cash on the $16,675 left in: 7.4%. DSCR 1.08.

If cash left is zero or negative and cash flow is positive, the cash on cash return is infinite: the property pays you and holds none of your money. If cash flow is negative, no amount of recovered cash makes the rental a good one.

The three solvers

The point of the math is to work it backwards before you offer.

ARV needed for full recovery. Set cash out equal to cash invested and solve. It reduces to: refinance loan × (1 − closing %) = total project cost. So:

ARV needed = total project cost / (LTV × (1 − refinance closing %))

Example: $205,825 / (0.75 × 0.97) = $282,921. With 75% LTV and 3% costs, the ARV has to be about 1.37 times total cost.

Maximum purchase price for full recovery. Points, interest and closing costs scale with price, so the calculator solves this by search. In the example it is about $135,000, roughly $15,000 below the $150,000 paid. That is the offer that gets every dollar back at a $260,000 ARV.

Refinance LTV needed for full recovery. Total project cost divided by ARV and by (1 − closing %). Example: $205,825 / ($260,000 × 0.97) = 81.6%. Above what most lenders offer, which is another way of saying the deal leaves cash in.

What the formula leaves out

Income taxes on the cash out (there are none; refinance proceeds are borrowed money, not income). Depreciation. Appreciation after the refinance. The time value of six to twelve months of your cash. A prepayment penalty on the hard money loan, if any, which belongs in holding costs.

It also treats the ARV as a fact. It is an estimate until the appraisal lands, and the risks guide covers what a miss costs. The ARV pages show every stage of this formula at each after-repair value from $150,000 to $1 million.

The BRRRR Formula: How to Calculate a Deal From Purchase to Refinance