BRRR LTV Rate and IRR
This is just a random thought that surprised me, but might be well known to more experienced investors...
I've been doing some modelling ahead of launching a fund doing BRRRR investing. I was looking at the impact on IRR of 70%, 75%, and 80% LTV refinance rates.
Holding other variables constant, each LTV rate has the same IRR over a 10-year period in my model. At 70%, the rent cash flow is higher and the profit at liquidation is higher, but at 80%, you would be able to purchase more properties over a shorter period and have more capital remaining if, for example, you were returning capital to investors after a defined period.
I have run the model a number of different ways as they apply to the fund I'm raising. This may be different under other conditions, but I think some investors may find this interesting.
Shawn McCoy
Podcast Guest on BP Business Podcast #75