I'm relatively new here to BP so still trying to understand how everything works. I'm having trouble understanding how exactly the BRRRR calculator works in regards to MF. After putting in the purchase price and other info can the first "Purchase Loan Details" section be a traditional commercial loan to work out as a BRRRR or does it need to be a cash/hard money to work out right? Then the "Refinance Loan Details" section is just the adjusted new loan with the appreciated value so you can pay back investors. Not sure what I'm doing wrong here but I know I'm doing something wrong, because every time I fill it all out it comes up in some extreme negative cash flow number. So extreme that I know its wrong not just a bad deal since I filled it out with the traditional rental calculator and cash flows.
So there are really two questions here:
1) Does BRRRR work with medium to large MF? If so can you point me to some reading material on this? I know I'm not as read up on BRRRR as more traditional ways of doing deals.
2) Am pretty sure I'm using the BRRRR Calculator wrong can you help me out?
Thanks in advance.
PS: Mods if theres a better fit for this elsewhere feel free to move this thread. Still getting use to your forum layout too.
@Nik Moushon the best way for us to help you is if you Sher a link to the calculation you are doing. its had to see where you gone wrong without seeing what you did.
It sounds like somewhere the debt section its maybe combining as 1 debt without refinancing...?
Yes, It is possible to do BRRRR with any size Multifamily. Here is a BP blog article i written on The BRRRR strategy and and how to refinance BRRRR.
In general you wouldn't want to take a long terms conventional debt when you do BRRRR at the start, probably local bank would be the best option after cash or private money. This is simply because hard money would be more expensive.
The long term debt is what you want to refinance to, one the value is added and the property is ready to go long term.
I hope that helps.
@Hadar Orkibi Thanks for the reply. Your blog post was very informative. Though I think I'm still confused on how to enter all the info correctly in the calculator. Though your explanation makes sense.
Heres a link to the PDF I did on the calculator. I'm doing this to understand the calculator not trying to figure out the exact numbers on a potential deal. So if the numbers are a bit....off...thats why.
Thanks for the help.
@Nik Moushon , the obvious error is when you inputted a higher refinanced mortgage cost per month than its initial mortgage! Can you see why that should never happen? ie. The refinance pays off the first mortgage/HML, and is a long term mortgage ie. Minimum monthly expense possible. You've put your PITI payments at 96% of your rent return!
Having said that, is there a reason why you reckon you'd only get 1% vacancy per year on average? Good luck with that! [But it's probably prudent to plug in around 8% vacancy, to help see how your cash flow will pan out realistically]...
@Brent Coombs I thought you would want to refi at a higher mortgage to pay off investors/hard money or get your initial money back out? As long as the cash flow works of course.
As for the vacancy rate its been in the 1-2% for the last several decades in my area. We have a big housing shortage in the area. Geography of the area leads to a very limiting buildable area. I might be a bit optimistic with the 1% but as long as I'm aiming for the C-B class area I should be in that range, even in a slow market. Its a good problem to have....now I just wish construction costs havent nearly doubled.
@Nik Moushon your Refi loan amount is $1.3mil same as your ARV.
If you read the note (hover on the ?) you will see: that the loan amount can be 70% of your ARV, that should be $910k
Also, on the expenses note that the Fixed Landlord-Paid Expenses is a $$ amount
and the Variable Landlord-Paid Expenses is a % to input.
Try changing that!
also you want to try and get longer amortization then 20 years. Minimum 25 years for better cash flow.
I agree with @Brent Coombs that your expenses are to low.
how did you establish these numbers?
I would go with 8% across the board for R&M, Vacancy and 10% for Property management is fine.
If your occupancy is strong then go with 5% as minimum. - I rather be conservative then over optimistic.
See the report i got using the numbers you provided but with Second loan amount of 70% of ARV at $910k.
@Hadar Orkibi Thank you for spending the time re-doing my report. Makes so much more sense now. I miss understood the 70% for the refi.
Thanks for the suggestion on expenses. It never hurts to be conservative and build that buffer. Vacancy in the area has been 1% for decades. Though I should be more conservative just to be safe anyways. The other numbers were based off what I've seen other use. But they were for small MF now that I think of it. So would make sense those would go up with a larger MF.
Glad I could help @Nik Moushon ! That’s why BP is so great!
@Nik Moushon , if you can get a $1.3M property for just $865k all-in, kudos! And if 70% of your lender's post-rehab appraisal gets you your HML paid off and a $45k cash-out, double kudos!
One suggestion: don't take the extra cash out if that would put its ongoing cash flow into negative...