BRRRR - Refi cash out amount

4 Replies

When analyzing a long term rental deal how do you determine the appraisal value? In my analysis I am using the ARV as the refi appraisal amount. Trouble is the monthly mortgage increases based on the ARV or appraisal value from the lender.

For example:

Cash purchase price $50k
ARV $100k
75% cash out refi

The good part is I can get all my cash back. The down side is the mortgage on $100k does not give me the monthly cash flow I'm looking for.

What am I missing?

Thanks for your help BP!

Most likely you'll only be able to get $25K if the property is $100,000 ARV and you put $50K into the purchase and they're doing 75%LTV ($100,000 X 75% LTV = $75,000 - $50,000 Cash = $25K)

Are you putting any money into renovation to get from $50K purchase to $100,000K ARV ?

Does the monthly cashflow work out better on a loan of $75,000 ?

From your example, the mortgage wouldn't be on 100k, it would be on 75k.  So based on that, are you cashflowing with a 75k mortgage?

it's a 75% cash out refi on the ARV. So if your ARV is 100k, then the refinanced mortgage would be a 75k mortgage. If you were "all in" at 50k then you would actually be making a profit of 25k but I'm assuming you are putting money into a rehab. So if you put 25k into rehab, your all in would be 75k and your refi would be 75k so you would essentially be getting your investment paid for and now you own a cash flowing property.

@Ben Raef , I agree with Pat. You never have to work out the cash flow based on a 100% ARV mortgage - because banks won't lend out 100% ARV! (Some won't even lend out 75%). Cheers...

Thank you @Aaron Howell @Pat McCandless for the clarification.

You are correct that the mortgage would be for 75% of $100k = $75.  The mortgage for a $75k loan is more than $50k loan and therefor the cash flow is about $200/month less.  

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here