When using the BRRR calculator .....

Question

When using the BRRRR calculator to analyze a rehab and flip, how have you adjusted for 70% LTV for the refinance? It seems to be refinancing at 100% of the loan. I believe those days are long gone since the crash. This is throwing off my actual Cash Flow number, I am wondering if anyone has found a good work around, can tell me what I am doing incorrectly. It's very possible I am not seeing or doing something correctly.

Derrick Gordon · Answer

Yes, I calculate for a min 500/Month of Cash Flow after PIMI / vacancy / cap exp / expenses / etc.

Thanks for you time @Brent Coombs

Brent Coombs · Answer

Yes Derrick, if those are the numbers, not only do you have zero of your own dollars left in the deal, you've just made $50k out of thin air.

Which is why the term "infinite returns" is possible. (That is, So long as its rental returns keep up with your loan repayment obligations, which, you would also have calculated from day one, right?)  Cheers...

Derrick Gordon · Answer

Apologies if I seem a bit dense. @Brent Coombs & @Craig Anderson.

1. You purchase a house at a significant discount 55% of ARV. (Hard Money or Cash) : $550

2. You renovate the house: $100

3. House current ARV after renovation: $1000

4.  Refinance the house at 70% of ARV: $700

5. Leave $300 in the house, walk away with profit of $50 and your $650 from purchase and rehab.

ok. I found where I was messing up. I was just doing the full ARV and not 70% of ARV, I didn't realize I should  have manually done that math myself into the calculator. I was wondering why BP number were so different from my spread sheet number. Im all set now, Thank you gentlemen.

Brent Coombs · Answer

Derrick, "It seems to be refinancing at 100% of the loan" is a necessary requirement if you are to end up with zero of your own dollars in each BRRRR deal.

Remember though, your loan amount is never intended to be 100% of the property's (Bank established) value.

Hence the need to only be buying deals that Banks will later value at 43%+ more than you'll need to borrow for your next deal.  Cheers...

Craig Anderson · Answer

HI. I know in the BRRRR calculator when you enter REFI numbers, you need to put in around 70-75% of the ARV which is what you would get from the bank, typically.