BRRRR Deal on a $400,000 Purchase

Buying at $400,000 with $100,000 of rehab puts $541,750 into the project and $181,750 of your own cash. To get all of it back at a 75% refinance, the property needs to appraise at about $744,674. At the $667,000 ARV these pages assume, $56,508 stays in.

The $400,000 deal, line by line

Assumptions: ARV of $667,000 (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, $1,125 a month holding, rent of $5,675, and a 75% refinance at 7.25% with 3% costs.

Purchase $400,000, closing $8,000, rehab $100,000
Hard money loan $360,000, points $7,200, interest $19,800, holding $6,750
Total project cost $541,750, cash invested $181,750
Refinance loan $500,250, cash out $125,243, cash left $56,508 (69% recovered)
Equity after refinance $166,750, equity created $125,250
NOI $41,711, payment $3,413 a month, cash flow $760 a year, DSCR 1.02

How the ARV changes a $400,000 deal

Same price and rehab, different appraisal. All cash comes back at about $744,674, where the purchase is 54% of ARV.

ARV	Price / ARV	Cash out	Cash left	DSCR
$560,000	71%	$47,400	$134,350	1.21
$600,000	67%	$76,500	$105,250	1.13
$640,000	63%	$105,600	$76,150	1.06
$668,000	60%	$125,970	$55,780	1.02
$700,000	57%	$149,250	$32,500	0.97
$760,000	53%	$192,900	$0	0.89

How a rehab overrun changes it

At the $667,000 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
$50,000	$491,750	$131,750	$6,508	$675,945
$75,000	$516,750	$156,750	$31,508	$710,309
$100,000	$541,750	$181,750	$56,508	$744,674
$125,000	$566,750	$206,750	$81,508	$779,038
$150,000	$591,750	$231,750	$106,508	$813,402

How the refinance rate changes the rental

Cash out does not depend on the rate. Cash flow and DSCR do. On the $500,250 loan:

Refi rate	Payment	Cash flow / yr	DSCR
6.00%	$2,999	$5,720	1.16
6.50%	$3,162	$3,768	1.10
7.00%	$3,328	$1,773	1.04
7.25%	$3,413	$760	1.02
7.50%	$3,498	-$263	0.99
8.00%	$3,671	-$2,337	0.95

Run the $400,000 deal yourself

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

1. Buy

Purchase price$Buyer closing costs%$8,000Short-term loan% of price$360,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$7,200

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. $6,750 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%$500,250 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$15,008

Cash left in the deal

$56,508

Partial

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

$181,750 in, $125,243 out (69% recovered)

All-in cost

Purchase: $400,000
Closing costs: $8,000
Rehab: $100,000
Points and fees: $7,200
Interest, 6 mo: $19,800
Holding costs, 6 mo: $6,750
Total project cost: $541,750
Less short-term loan: -$360,000
Cash invested: $181,750
Purchase + rehab vs ARV70% rule max offer: $366,900: 75%

Refinance

New loan at 75% of ARV: $500,250
Pay off short-term loan: -$360,000
Refinance costs: -$15,008
Cash out: $125,243
Equity after refinanceARV minus new loan: $166,750
Equity createdARV minus total project cost: $125,250

Rental after refinance

Net operating income$64,695 collected, $22,984 expenses: $41,711
Debt service$3,412.59 a month: -$40,951
Annual cash flow: $760
Monthly cash flow: $63
Cash on cash (on cash left): 1.3%
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 $667,000 now: $744,674
Max purchase pricevs $400,000 now: $348,039
Refi LTV neededAbove what lenders offer: 83.7%

$400,000 BRRRR questions

What ARV does a $400,000 BRRRR need to get all the cash back?

About $744,674 with $100,000 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 $667,000 ARV, $56,508 stays in the deal.

How much cash do I need for a $400,000 BRRRR?

About $181,750 up front: the 10% not covered by the hard money loan ($40,000), closing costs of $8,000, the $100,000 rehab, $7,200 in points, and $26,550 of interest and holding costs. Most of it comes back at the refinance if the ARV holds.

Does a $400,000 BRRRR cash flow after the refinance?

At $5,675 rent and a $500,250 loan at 7.25%, cash flow is $760 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.