first BRRRR, how well or bad did I do?

Question

Hello I just finished my first BRRRR in spokane,WA here are the numbers:

purchase price166k with 14K closing costs, private money lender 9.5% interest only payments, including a rehab loan of 53K.

rehab costs (including 5 months of loan payments) 78K

rehab description: from 1/1 500sqft to 2/2 960 sqft

Appraisal came back 290K

refinance loan 217.5K at 3.625% with closing cost of 6.6K

Rented for 1.7 K

I am trying to find out if it was a good BRRRR or not. what is my Cash-on-Cash % and some other numbers as I have used different tools and they all say different numers

Andrew Postell · Answer

@Angel Perez yes, in year 1 your returns aren't very sexy.  But we don't buy properties to keep them for 1 year.  5 years should be the right method.  Brandon Turner even wrote a post about it:  https://www.biggerpockets.com/...

Angel Perez · Answer

@Andrew Postell thank you for your response. For Cash on cash return for the first year I came at 7.7% (Using a 15% expense ratio) Which is not the 12% that I have heard on Biggerpockets videos, but to be my first BRRRR I think I did OK. besides I learned a lot and is better than the 5-6% that I would get from the stock market.

Again thank you for your help and I hope the next one goes better :)

Andrew Postell · Answer

@Angel Perez oh, and you can absolutely find an 80% conventional lender.  100% guaranteed.  But besides that, great job.

Andrew Postell · Answer

@Angel Perez ok, great!  That's exactly what we need to know.  So let's take this from the top.

If you were to buy this property off the MLS

• You have 25% equity in this property so we need to use 25% down payment.  25% down of $290k = $72,500.  Plus your closing costs (let's use $14k from your same closing cots) for a total of $86,500 out of pocket.

Your BRRRR property

• You came out of pocket $47k ($14k down, $25 rehab, then $8k refi closing costs)

So congratulations!  Your BRRRR method worked better than buying a property out right.  This is exactly why this method works so well.

Now to calculate your "cash on cash" return.  I usually examine this at a 1 year look and a 5 year look.  So if you were to sell the property in 5 years, how much money would you make?

Using a 15% expense ratio you would net $3,673 in rental income the first year and you have $72,500 in equity at a cost of $47k to you.  I think you should be able to calculate your cash on cash return with that data.

After 5 years, that rental income would equal $18,365.  But after 5 years you get 2 other values:  Appreciation and Principle Buy Down.

Using 4% appreciation means your value on this property after 5 years would be $352,829.

After 5 years of making mortgage payments your mortgage balance would be $195,507.

So after 5 years you now have $157,322 of equity. If you were to sell you would subtract 6% for sales costs.  So if you use the math here, your 5 year rate of return on your $47k should be about 37%.  See if your math comes back with that number.

Hope all of this makes sense.  Thanks!

Angel Perez · Answer

@Kris L.

Hi thank you for your response, would you be able to give more details? How did you run your numbers? thank you

Angel Perez · Answer

@Andrew Postell

Hi Andrew,

1)It is a SFH.

2)I think I am confusing some terms here is a more detailed explanation about the private loan that I took to buy the house the Initial loan amount was 217.5K (166K purchase + 53K rehab loan + 12.5 closing costs - 14K down = 217.5K) so in that transaction I put 14K from my pocket. Then, the rehab cost was 78K where I used 53K from the rehab loan money plus 25K from my pocket. and now for the refinancing I got a loan for 217.5 K (which is the 75% of the appraisal value *I looked everywhere to get an 80% but no luck there*) and checking on the document I actually paid 8K on that closing.

3) the property is rented for 1.7K tenants pay all the services + lawn care + snow removal

4) My monthly payments that include PITI is $1,139. and that is for the refinance mortgage which is a 30y fixed at %3.625

***on side note this numbers are rounded up to make easier the math and so I can understand better :)

thank you for helping me

Kris L. · Answer

@Angel Perez

You aren’t too far off my last BRRRR.

My all in cost was 232k, and I pulled 202.5k on an appraisal of 270k with rents of $1900.  My feeling on mine was it certainly wasn’t a home run.  Maybe not quit a sinhke, but it’s at least a fielders choice.

Angel Perez · Answer

Hi Andrew,

1)It is a SFH.

2)I think I am confusing some terms here is a more detail explanation about the private loan that I took to buy the house the Initial loan amount was 217.5K (166K purchase + 53K rehab loan + 12.5 closing costs - 14K down = 217.5K) so in that transaction I put 14K from my pocket. Then, the rehab cost was 78K where I used 53K from the rehab loan money plus 25K from my pocket. and now for the refinancing I got a loan for 217.5 K (which is the 75% of the appraisal value *I looked everywhere to get an 80% but no luck there*) and checking on the document I actually paid 8K on that closing.

3) the property is rented for 1.7K tenants pay all the services + lawn care + snow removal

4) My monthly payments that include PITI is $1,139. and that is for the refinance mortgage which is a 30y fixed at %3.625

***on side note this numbers are rounded up to make easier the math and so I can understand better :)

thank you for helping me

Andrew Postell · Answer

@Angel Perez going off the numbers provided here's how I would analyze this transaction:

Purchase price = $166k

Rehab needed = $78k

Closing Costs = $14k

Total Costs for this property = $258,000

Total Value of this property = $290,000

Costs are 89% of the ARV of the property. (key piece of information here)

Next we analyze our REFINANCE Step.

Refinanced $217,500 which is 75% of ARV.

Now, what I cannot tell is if this is a single family home or multi-family (2-4 unit) home.  It looks like you used "conventional" financing with that rate.

I also cannot tell what your original loan amount was for.  Which means, I cannot tell how much you came "out of pocket" to purchase this deal.  That's what we would need to calculate your "cash on cash" return.

If you don't mind, answer these questions:

• What type of a home was this?
• How much was your initial loan for?
• How much are you renting the property for now?
• What is your total "debt service" payment (with taxes, insurance, HOA)?

If you can provide those I can finish up the rest.  Thanks!