BRRRR Deal on a $175,000 Purchase

Buying at $175,000 with $44,000 of rehab puts $237,313 into the project and $79,813 of your own cash. To get all of it back at a 75% refinance, the property needs to appraise at about $326,203. At the $292,000 ARV these pages assume, $24,883 stays in.

The $175,000 deal, line by line

Assumptions: ARV of $292,000 (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, $500 a month holding, rent of $2,475, and a 75% refinance at 7.25% with 3% costs.

Purchase $175,000, closing $3,500, rehab $44,000
Hard money loan $157,500, points $3,150, interest $8,663, holding $3,000
Total project cost $237,313, cash invested $79,813
Refinance loan $219,000, cash out $54,930, cash left $24,883 (69% recovered)
Equity after refinance $73,000, equity created $54,688
NOI $18,172, payment $1,494 a month, cash flow $245 a year, DSCR 1.01

How the ARV changes a $175,000 deal

Same price and rehab, different appraisal. All cash comes back at about $326,203, where the purchase is 54% of ARV.

ARV	Price / ARV	Cash out	Cash left	DSCR
$245,000	71%	$20,738	$59,075	1.21
$263,000	67%	$33,833	$45,980	1.13
$280,000	63%	$46,200	$33,613	1.06
$292,000	60%	$54,930	$24,883	1.01
$306,000	57%	$65,115	$14,698	0.97
$333,000	53%	$84,758	$0	0.89

How a rehab overrun changes it

At the $292,000 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
$22,000	$215,313	$57,813	$2,883	$295,962
$33,000	$226,313	$68,813	$13,883	$311,082
$44,000	$237,313	$79,813	$24,883	$326,203
$55,000	$248,313	$90,813	$35,883	$341,323
$66,000	$259,313	$101,813	$46,883	$356,443

How the refinance rate changes the rental

Cash out does not depend on the rate. Cash flow and DSCR do. On the $219,000 loan:

Refi rate	Payment	Cash flow / yr	DSCR
6.00%	$1,313	$2,416	1.15
6.50%	$1,384	$1,562	1.09
7.00%	$1,457	$688	1.04
7.25%	$1,494	$245	1.01
7.50%	$1,531	-$203	0.99
8.00%	$1,607	-$1,111	0.94

Run the $175,000 deal yourself

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

1. Buy

Purchase price$Buyer closing costs%$3,500Short-term loan% of price$157,500 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$3,150

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. $3,000 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%$219,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$6,570

Cash left in the deal

$24,883

Partial

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

$79,813 in, $54,930 out (69% recovered)

All-in cost

Purchase: $175,000
Closing costs: $3,500
Rehab: $44,000
Points and fees: $3,150
Interest, 6 mo: $8,663
Holding costs, 6 mo: $3,000
Total project cost: $237,313
Less short-term loan: -$157,500
Cash invested: $79,813
Purchase + rehab vs ARV70% rule max offer: $160,400: 75%

Refinance

New loan at 75% of ARV: $219,000
Pay off short-term loan: -$157,500
Refinance costs: -$6,570
Cash out: $54,930
Equity after refinanceARV minus new loan: $73,000
Equity createdARV minus total project cost: $54,688

Rental after refinance

Net operating income$28,215 collected, $10,043 expenses: $18,172
Debt service$1,493.97 a month: -$17,928
Annual cash flow: $245
Monthly cash flow: $20
Cash on cash (on cash left): 1.0%
DSCRNOI / debt service. Lenders want 1.0 to 1.25.: 1.01
Cap rate on cost6.2% on ARV: 7.7%

To get all your cash back

ARV neededvs $292,000 now: $326,203
Max purchase pricevs $175,000 now: $152,120
Refi LTV neededAbove what lenders offer: 83.8%

$175,000 BRRRR questions

What ARV does a $175,000 BRRRR need to get all the cash back?

About $326,203 with $44,000 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 $292,000 ARV, $24,883 stays in the deal.

How much cash do I need for a $175,000 BRRRR?

About $79,813 up front: the 10% not covered by the hard money loan ($17,500), closing costs of $3,500, the $44,000 rehab, $3,150 in points, and $11,663 of interest and holding costs. Most of it comes back at the refinance if the ARV holds.

Does a $175,000 BRRRR cash flow after the refinance?

At $2,475 rent and a $219,000 loan at 7.25%, cash flow is $245 a year and DSCR is 1.01. The rent-to-ARV ratio decides this more than the purchase price does, and 0.85% of ARV is thin at current rates.