What Hard Money Really Costs on a BRRRR: Points, Draws and Interest

Most BRRRR deals run on two loans. A short term purchase and rehab loan buys the house and pays for the work, then a long term refinance pays that loan off. That is how BRRRR loans work in practice, and the first loan is the part people price too low. On the calculator’s default deal, a $300,000 purchase with $60,000 of rehab and a $500,000 after repair value, the simple math says you get every dollar back plus $15,000. Real BRRRR method financing eats that surplus and more. Here is what the pieces cost.

How a purchase and rehab loan is structured

A hard money loan for a BRRRR has two parts. The lender funds a share of the purchase price at closing, commonly 85 to 90% for a borrower with some track record, and holds back the rehab budget to release in stages as the work gets done.

On the default deal at 90% of purchase and 100% of rehab:

• Purchase funding at closing: $270,000
• Rehab holdback: $60,000
• Loan balance at completion: $330,000
• Your down payment at closing: $30,000

The term is short. Nine to eighteen months is the usual range and twelve months is the common default. Payments are interest only, so there is no principal paydown and the payoff balance is the balance you borrowed. Which lender you use is a separate question, and so is the loan type, covered in which lender is best for BRRRR financing and what type of loan fits the strategy.

Points, origination and junk fees in plain numbers

One point is 1% of the loan amount, charged up front. Two points on $330,000 is $6,600. Ask one question before you accept a quote: points on what? Some lenders charge points on the full commitment including the rehab holdback, others only on the money funded at closing. On this deal that is the difference between $6,600 and $5,400.

Then the small stuff. Underwriting or processing, document preparation, a valuation or appraisal, a wire fee, and an inspection fee for every rehab draw. Each one looks too small to argue about. Together they usually land between $1,500 and $2,500 on a loan this size, and they sit on top of normal buyer closing costs, which run about 2% of the purchase price, or $6,000 here. Use $2,000 for lender fees until you have a written fee sheet in hand.

Rehab draws: you fund the work first, then get reimbursed

This is the part that catches first timers. The $60,000 holdback is not money you receive at closing. You pay for completed work, request a draw, wait for an inspection, and get reimbursed a few days later.

Three draws of $20,000 means you float $20,000 at a time. If inspection and funding take a week, that float stretches. Materials deposits land before any work is finished, so those are yours to cover too.

So the cash you need to start is not the $30,000 down payment:

• Down payment: $30,000
• Buyer closing costs: $6,000
• Points and lender fees: $8,600
• Draw float: about $20,000
• Interest and holding costs, paid monthly during the hold

Peak cash out of pocket on the default deal sits near $75,000 around month three. That gap between the down payment and the real requirement is the main reason deals stall halfway through a rehab, and it is worth reading alongside how much money you need to start.

Interest only payments and the interest reserve

Interest accrues on the outstanding balance, which climbs with each draw. At 11% with the rehab drawn over the first three months:

• Months 1 to 3, balance rising from $270,000 to $310,000: about $7,975
• Months 4 to 6, balance at $330,000: $3,025 a month, so $9,075
• Six month total: about $17,050

Two structures change that. Some lenders charge interest on the full $330,000 from day one whether it is drawn or not, which is $18,150 over six months, roughly $1,100 more. Others require an interest reserve, three or six months of payments held back out of loan proceeds. A reserve keeps money in your account during the rehab, but it is still borrowed money that raises your payoff balance, so it comes out of the refinance instead.

Rates are quoted deal by deal and move with the market, so use the quote you have rather than an average. Then run it two points higher to see what a slow lease up or a second lender costs. At 13%, six months of interest on this deal is about $20,150.

Loan to cost versus loan to ARV, and which one limits you

Two caps apply at the same time and the lower one wins.

Loan to cost compares the loan to purchase plus rehab. Here $330,000 of $360,000 is 92% loan to cost. Loan to ARV compares it to the finished value, so $330,000 against $500,000 is 66%, well inside a 70% cap of $350,000. On the default deal, cost is the binding limit. The loan-to-value ratio page covers how lenders frame these percentages.

Move one number and the other cap bites. If the lender’s appraiser calls the ARV $460,000, a 70% ARV cap is $322,000. The loan shrinks by $8,000 and you fund the difference. The refinance shrinks too, to 75% of $460,000, or $345,000, and the cash you leave in the deal goes from about $33,000 to about $62,000.

What the exit clause and the balloon date mean for your timeline

Hard money ends on a date. The full balance comes due as a balloon payment, and the only exits are a refinance, a sale or an extension. Three clauses decide how much flexibility you have.

Minimum interest. Some notes guarantee the lender three to six months of interest even if you pay off sooner. Refinancing in month four saves you nothing if the floor is six months.

Extension. Often six more months for half a point to a full point, sometimes at a higher rate, usually at the lender’s discretion rather than yours.

Exit or payoff fee. Not universal, normally quoted as a percentage of the balance at payoff.

Those dates have to line up with the refinance, and the refinance has its own clock. Conventional cash out refinances generally require six months of ownership before the lender will use the appraised value, and the appraisal comes after the work is done and the unit is leased. The cash-out refinance guide walks through those rules.

Plugging the real cost into your deal

Full cost of the default deal with a six month hold:

• Purchase and rehab: $360,000
• Buyer closing costs: $6,000
• Points and lender fees: $8,600
• Interest for six months: $17,050
• Holding costs at $850 a month: $5,100
• Refinance closing at 3% of $375,000: $11,250
• Total: $408,000

The refinance is $375,000. Instead of pocketing $15,000, you leave about $33,000 in the deal. The money itself costs roughly $37,000, about 7% of ARV. Stretch the hold to twelve months and interest plus holding add about $23,000, so the amount left in climbs to around $56,000.

None of that makes the deal bad. A $500,000 property renting for $4,400 with a $375,000 loan is a solid rental. It is just not a zero cash deal, and the difference between $0 and $33,000 decides whether you can buy the next one.

Price it before you offer

Get a written quote with the points, the fee sheet, the draw process, the minimum interest clause and the term length. Put those numbers into the BRRRR Calculator at brrrrcalculator.org with your purchase price, rehab budget and ARV, and read off what comes back at the refinance. If the answer is short, you found out before the offer instead of after the closing.