BRRRR Deal on a $125,000 Purchase

Buying at $125,000 with $31,000 of rehab puts $169,038 into the project and $56,538 of your own cash. To get all of it back at a 75% refinance, the property needs to appraise at about $232,354. At the $208,000 ARV these pages assume, $17,718 stays in.

The $125,000 deal, line by line

Assumptions: ARV of $208,000 (purchase at 60% of ARV), rehab at 15% of ARV, 2% closing, a 90% hard money loan at 11% with 2 points over 6 months, $350 a month holding, rent of $1,775, and a 75% refinance at 7.25% with 3% costs.

Purchase $125,000, closing $2,500, rehab $31,000
Hard money loan $112,500, points $2,250, interest $6,188, holding $2,100
Total project cost $169,038, cash invested $56,538
Refinance loan $156,000, cash out $38,820, cash left $17,718 (69% recovered)
Equity after refinance $52,000, equity created $38,963
NOI $13,057, payment $1,064 a month, cash flow $286 a year, DSCR 1.02

How the ARV changes a $125,000 deal

Same price and rehab, different appraisal. All cash comes back at about $232,354, where the purchase is 54% of ARV.

ARV	Price / ARV	Cash out	Cash left	DSCR
$175,000	71%	$14,813	$41,725	1.22
$188,000	66%	$24,270	$32,268	1.13
$200,000	63%	$33,000	$23,538	1.06
$209,000	60%	$39,548	$16,990	1.02
$219,000	57%	$46,823	$9,715	0.97
$238,000	53%	$60,645	$0	0.89

How a rehab overrun changes it

At the $208,000 ARV. Every rehab dollar is a cash dollar here, and it raises the ARV you need by about $1.37 (one dollar divided by 75% LTV and 97% after refinance costs).

Rehab	Total cost	Cash invested	Cash left	ARV for all cash back
$16,000	$154,038	$41,538	$2,718	$211,735
$23,000	$161,038	$48,538	$9,718	$221,357
$31,000	$169,038	$56,538	$17,718	$232,354
$39,000	$177,038	$64,538	$25,718	$243,351
$47,000	$185,038	$72,538	$33,718	$254,347

How the refinance rate changes the rental

Cash out does not depend on the rate. Cash flow and DSCR do. On the $156,000 loan:

Refi rate	Payment	Cash flow / yr	DSCR
6.00%	$935	$1,833	1.16
6.50%	$986	$1,224	1.10
7.00%	$1,038	$602	1.05
7.25%	$1,064	$286	1.02
7.50%	$1,091	-$33	1.00
8.00%	$1,145	-$679	0.95

Run the $125,000 deal yourself

Preloaded with the assumptions above. Change anything to match your property.

1. Buy

Purchase price$Buyer closing costs%$2,500Short-term loan% of price$112,500 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$2,250

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. $2,100 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%$156,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$4,680

Cash left in the deal

$17,718

Partial

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

$56,538 in, $38,820 out (69% recovered)

All-in cost

Purchase: $125,000
Closing costs: $2,500
Rehab: $31,000
Points and fees: $2,250
Interest, 6 mo: $6,188
Holding costs, 6 mo: $2,100
Total project cost: $169,038
Less short-term loan: -$112,500
Cash invested: $56,538
Purchase + rehab vs ARV70% rule max offer: $114,600: 75%

Refinance

New loan at 75% of ARV: $156,000
Pay off short-term loan: -$112,500
Refinance costs: -$4,680
Cash out: $38,820
Equity after refinanceARV minus new loan: $52,000
Equity createdARV minus total project cost: $38,963

Rental after refinance

Net operating income$20,235 collected, $7,178 expenses: $13,057
Debt service$1,064.19 a month: -$12,770
Annual cash flow: $286
Monthly cash flow: $24
Cash on cash (on cash left): 1.6%
DSCRNOI / debt service. Lenders want 1.0 to 1.25.: 1.02
Cap rate on cost6.3% on ARV: 7.7%

To get all your cash back

ARV neededvs $208,000 now: $232,354
Max purchase pricevs $125,000 now: $108,708
Refi LTV neededAbove what lenders offer: 83.8%

$125,000 BRRRR questions

What ARV does a $125,000 BRRRR need to get all the cash back?

About $232,354 with $31,000 of rehab, a 90% hard money loan at 11% for six months, and a 75% refinance with 3% costs. That is 86% above the purchase price. At the standard $208,000 ARV, $17,718 stays in the deal.

How much cash do I need for a $125,000 BRRRR?

About $56,538 up front: the 10% not covered by the hard money loan ($12,500), closing costs of $2,500, the $31,000 rehab, $2,250 in points, and $8,288 of interest and holding costs. Most of it comes back at the refinance if the ARV holds.

Does a $125,000 BRRRR cash flow after the refinance?

At $1,775 rent and a $156,000 loan at 7.25%, cash flow is $286 a year and DSCR is 1.02. The rent-to-ARV ratio decides this more than the purchase price does, and 0.85% of ARV is thin at current rates.