BRRRR Deal on a $500,000 Purchase

Buying at $500,000 with $125,000 of rehab puts $677,300 into the project and $227,300 of your own cash. To get all of it back at a 75% refinance, the property needs to appraise at about $930,997. At the $833,000 ARV these pages assume, $71,293 stays in.

The $500,000 deal, line by line

Assumptions: ARV of $833,000 (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, $1,425 a month holding, rent of $7,075, and a 75% refinance at 7.25% with 3% costs.

Purchase $500,000, closing $10,000, rehab $125,000
Hard money loan $450,000, points $9,000, interest $24,750, holding $8,550
Total project cost $677,300, cash invested $227,300
Refinance loan $624,750, cash out $156,008, cash left $71,293 (69% recovered)
Equity after refinance $208,250, equity created $155,700
NOI $51,976, payment $4,262 a month, cash flow $833 a year, DSCR 1.02

How the ARV changes a $500,000 deal

Same price and rehab, different appraisal. All cash comes back at about $930,997, where the purchase is 54% of ARV.

ARV	Price / ARV	Cash out	Cash left	DSCR
$700,000	71%	$59,250	$168,050	1.21
$750,000	67%	$95,625	$131,675	1.13
$800,000	63%	$132,000	$95,300	1.06
$835,000	60%	$157,463	$69,838	1.01
$875,000	57%	$186,563	$40,738	0.97
$950,000	53%	$241,125	$0	0.89

How a rehab overrun changes it

At the $833,000 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
$63,000	$615,300	$165,300	$9,293	$845,773
$94,000	$646,300	$196,300	$40,293	$888,385
$125,000	$677,300	$227,300	$71,293	$930,997
$156,000	$708,300	$258,300	$102,293	$973,608
$188,000	$740,300	$290,300	$134,293	$1,017,595

How the refinance rate changes the rental

Cash out does not depend on the rate. Cash flow and DSCR do. On the $624,750 loan:

Refi rate	Payment	Cash flow / yr	DSCR
6.00%	$3,746	$7,028	1.16
6.50%	$3,949	$4,590	1.10
7.00%	$4,156	$2,098	1.04
7.25%	$4,262	$833	1.02
7.50%	$4,368	-$444	0.99
8.00%	$4,584	-$3,034	0.94

Run the $500,000 deal yourself

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

1. Buy

Purchase price$Buyer closing costs%$10,000Short-term loan% of price$450,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$9,000

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. $8,550 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%$624,750 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$18,743

Cash left in the deal

$71,293

Partial

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

$227,300 in, $156,008 out (69% recovered)

All-in cost

Purchase: $500,000
Closing costs: $10,000
Rehab: $125,000
Points and fees: $9,000
Interest, 6 mo: $24,750
Holding costs, 6 mo: $8,550
Total project cost: $677,300
Less short-term loan: -$450,000
Cash invested: $227,300
Purchase + rehab vs ARV70% rule max offer: $458,100: 75%

Refinance

New loan at 75% of ARV: $624,750
Pay off short-term loan: -$450,000
Refinance costs: -$18,743
Cash out: $156,008
Equity after refinanceARV minus new loan: $208,250
Equity createdARV minus total project cost: $155,700

Rental after refinance

Net operating income$80,655 collected, $28,679 expenses: $51,976
Debt service$4,261.90 a month: -$51,143
Annual cash flow: $833
Monthly cash flow: $69
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 $833,000 now: $930,997
Max purchase pricevs $500,000 now: $434,444
Refi LTV neededAbove what lenders offer: 83.8%

$500,000 BRRRR questions

What ARV does a $500,000 BRRRR need to get all the cash back?

About $930,997 with $125,000 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 $833,000 ARV, $71,293 stays in the deal.

How much cash do I need for a $500,000 BRRRR?

About $227,300 up front: the 10% not covered by the hard money loan ($50,000), closing costs of $10,000, the $125,000 rehab, $9,000 in points, and $33,300 of interest and holding costs. Most of it comes back at the refinance if the ARV holds.

Does a $500,000 BRRRR cash flow after the refinance?

At $7,075 rent and a $624,750 loan at 7.25%, cash flow is $833 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.