Calculating Cash-on-Cash for BRRRRs

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Calculating Cash-on-Cash for BRRRRs

Jason Kenney
Member since 2021 · 6 posts · 2 votes

Can anyone provide any guidance on calculating the cash-on-cash for a BRRRR?

If the property generates no cash flow until after the refinance, is it correct to use the 'Cash-out-Refi Amount' as essentially the cash inflow?

Based on the example below, is the cash-on-cash calculation correct?

Thank you!

ARV = $200,000
Cash-out-Refi Amount (75% LTV) = $150,000
Purchase Price = $90,000
Rehab Costs = $30,000
Closing Costs (4%) = $4,000
Carrying Costs (3 months) = $5,000

$150,000 - $129,000 / $129,000 = 16%

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  • Brandon RushPro Member
    Real Estate Agent · Portland, CT · Member since 2019 · 761 posts · 849 votes
    4y

    Hey Jason,

    So your COC return will be based on what the property is brining in via net rental income vs the money you left in the deal. Based on this deal you have $21k left in the deal. If you are netting $1500/mo, that's $18k/yr. That would me your COC return is 85% ($18k/$21K x 100 = 85% COC). Just change around the numbers, plug in your net cash flow, and you will determine your COC return.

    Hope that helps and good luck!

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  • Jason Kenney
    OP
    Member since 2021 · 6 posts · 2 votes
    4y

    Hey Brandon,

    Thanks for your reply!  In the example, after the Cash-out-Refi,  I'm able to regain all my initial capital plus extract an additional 21K from the deal. This is where my confusion is on the COC calculation. Assuming I've done really well on the BRRRR and I'm able to both regain all my initial capital plus extract some additional equity from the deal, how do I calculate the return?  Is it simply (net cash inflow/net cash outflow)?

    E.g. $150,000 (received from cash out refi)/$129,000 (my "all in" investment) = 1.16  The "1" means I've regained all my initial investment, so I've now got infinite returns and the ".16" would mean those returns are 16%?

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    4y

    @Jason Kenney the concept of "cash-on-cash" returns is basically "How much money do I get from investing a certain amount of money".

    So in your example above, your "cash-on-cash" return is infinity.  You have no money in the deal.  Since you invested no money (you got it all back), the formula would not work properly.  So use $1 as your "initial investment" and then it will show a little better. 

    Also, keep in mind that you are neglecting 2 things from your true "cash on cash" formula - and those 2 things come into play when you SELL your asset.   So let assume you do invest $1, you have NO cash flow, and sell in 5 years.  You would want to calculate an appropriate amount of appreciation, and then calculate your "principle pay down" from the mortgage being paid.  The difference would be your equity position.  Now, when you sell you do have some closing costs, so subtract those out, and that will give you are true cash-on-cash return.

    I hope all of that makes sense.  There's a quick picture of the calculator I created many years ago:

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  • Jason Kenney
    OP
    Member since 2021 · 6 posts · 2 votes
    4y

    @Andrew Postell - thanks Andrew! By the way, I've worked with Guaranteed Rate numerous times in the past to finance the purchase of some SFR investment properties. I've decided to change my business model to use the BRRRR method instead. But, Guaranteed Rate was great to work with!

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