BRRRR Deal on a $300,000 Purchase

Buying at $300,000 with $75,000 of rehab puts $406,350 into the project and $136,350 of your own cash. To get all of it back at a 75% refinance, the property needs to appraise at about $558,557. At the $500,000 ARV these pages assume, $42,600 stays in.

The $300,000 deal, line by line

Assumptions: ARV of $500,000 (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, $850 a month holding, rent of $4,250, and a 75% refinance at 7.25% with 3% costs.

Purchase $300,000, closing $6,000, rehab $75,000
Hard money loan $270,000, points $5,400, interest $14,850, holding $5,100
Total project cost $406,350, cash invested $136,350
Refinance loan $375,000, cash out $93,750, cash left $42,600 (69% recovered)
Equity after refinance $125,000, equity created $93,650
NOI $31,229, payment $2,558 a month, cash flow $531 a year, DSCR 1.02

How the ARV changes a $300,000 deal

Same price and rehab, different appraisal. All cash comes back at about $558,557, where the purchase is 54% of ARV.

ARV	Price / ARV	Cash out	Cash left	DSCR
$420,000	71%	$35,550	$100,800	1.21
$450,000	67%	$57,375	$78,975	1.13
$480,000	63%	$79,200	$57,150	1.06
$501,000	60%	$94,478	$41,873	1.02
$525,000	57%	$111,938	$24,413	0.97
$570,000	53%	$144,675	$0	0.89

How a rehab overrun changes it

At the $500,000 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
$38,000	$369,350	$99,350	$5,600	$507,698
$56,000	$387,350	$117,350	$23,600	$532,440
$75,000	$406,350	$136,350	$42,600	$558,557
$94,000	$425,350	$155,350	$61,600	$584,674
$113,000	$444,350	$174,350	$80,600	$610,790

How the refinance rate changes the rental

Cash out does not depend on the rate. Cash flow and DSCR do. On the $375,000 loan:

Refi rate	Payment	Cash flow / yr	DSCR
6.00%	$2,248	$4,249	1.16
6.50%	$2,370	$2,786	1.10
7.00%	$2,495	$1,290	1.04
7.25%	$2,558	$531	1.02
7.50%	$2,622	-$236	0.99
8.00%	$2,752	-$1,790	0.95

Run the $300,000 deal yourself

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

1. Buy

Purchase price$Buyer closing costs%$6,000Short-term loan% of price$270,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$5,400

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. $5,100 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%$375,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$11,250

Cash left in the deal

$42,600

Partial

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

$136,350 in, $93,750 out (69% recovered)

All-in cost

Purchase: $300,000
Closing costs: $6,000
Rehab: $75,000
Points and fees: $5,400
Interest, 6 mo: $14,850
Holding costs, 6 mo: $5,100
Total project cost: $406,350
Less short-term loan: -$270,000
Cash invested: $136,350
Purchase + rehab vs ARV70% rule max offer: $275,000: 75%

Refinance

New loan at 75% of ARV: $375,000
Pay off short-term loan: -$270,000
Refinance costs: -$11,250
Cash out: $93,750
Equity after refinanceARV minus new loan: $125,000
Equity createdARV minus total project cost: $93,650

Rental after refinance

Net operating income$48,450 collected, $17,221 expenses: $31,229
Debt service$2,558.16 a month: -$30,698
Annual cash flow: $531
Monthly cash flow: $44
Cash on cash (on cash left): 1.2%
DSCRNOI / debt service. Lenders want 1.0 to 1.25.: 1.02
Cap rate on cost6.2% on ARV: 7.7%

To get all your cash back

ARV neededvs $500,000 now: $558,557
Max purchase pricevs $300,000 now: $260,828
Refi LTV neededAbove what lenders offer: 83.8%

$300,000 BRRRR questions

What ARV does a $300,000 BRRRR need to get all the cash back?

About $558,557 with $75,000 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 $500,000 ARV, $42,600 stays in the deal.

How much cash do I need for a $300,000 BRRRR?

About $136,350 up front: the 10% not covered by the hard money loan ($30,000), closing costs of $6,000, the $75,000 rehab, $5,400 in points, and $19,950 of interest and holding costs. Most of it comes back at the refinance if the ARV holds.

Does a $300,000 BRRRR cash flow after the refinance?

At $4,250 rent and a $375,000 loan at 7.25%, cash flow is $531 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.