1-2% rule for BRRRR based on ARV, all-in cost, or refi amount?

2 Replies

Hi all! As I'm analyzing BRRRR deals, I'm trying to use the 1% (or 2%) rule of thumb as part of my initial quick analysis before diving deeper into it. But for a BRRRR, should that percentage be calculated based on the ARV of the property, my all-in cost, or should it be based on how much I pull out of it in the cash out refinance?

With the several videos and forum posts I've seen, my best guess is that most people base it on the ARV. But personally, I'm leaning toward how much the cash out refinance is to do an initial determination of whether it will cash flow.

@David Ripplinger - If you're buying a property that you will renovate before getting a tenant then you'd base it off of the ARV because the refi loan you will have once complete is the same as if you purchased it fully renovated and turn key. It's a rule of thumb though so make sure you follow up with the other factors (high or low tax area, is the area appreciating? tenant pool and what type of turn over expenses are "normal" at that rent range, rate, term and LTV you can get).

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