Curious about the 70% Rule for analyzing a BRRRR

[Travis Andres]

I'm guessing the 70% rule is to determine if you'd be able to pull all/most of your money back out on the refi (70% LTV max)?

If so, now I'm seeing lenders willing to do DSCR loans of 75% LTV, so then would I switch to say 75% Rule for analysis?

Thanks!

[Andrew Postell]

@Travis Andres you've got some good comments above but I would like to say something a little different here if you don't mind. The LTV amount I use is 75%. And the reason I use that amount is because that's the amount that my Hard Money Lenders will give me on a property. If I'm looking at a property with a ARV of $300,000...well, I don't have $210,000 just laying around. I have to use lenders to execute on my properties. So, if my BUY lender will give me 75% and my REFINANCE lender will give me 80%, then I know what numbers I need to use when analyzing a property.

For example, if I am ok with coming out of pocket 5% on a home...then I take 80% of the ARV, subtract out the rehab, and the remaining amount is my offer. This is a little over simplified (there are closing costs and holding costs) but that's the concept.

Is it possible to come out of pocket $0?  I mean, it's POSSIBLE...but not PROBABLE. I'm usually coming out of pocket something but knowing what my BUY lender will lend me, 75%, tells me the other math in the equation.

Hope all of that makes sense.