BRRR - Really a viable investment?

[Anthony Torres]

I have been running the numbers of an example BRRR to help get my head around this investment strategy and there are a few things I am confused about.

Here's a theoretical deal:

(ARV * 70%) - Rehab costs = Purchase price

($150,000 * 70%) - $30,000 = $75,000

But what about closing costs, loan costs, refinance costs? 

One of the suggestions I've seen is to get a hard money loan because the condition of these houses don't usually qualify for traditional financing at time of purchase. If I put 25% into the deal, $26,250, and take out a hard money loan for the remainder, $78,750.  The loan will likely cost around $11,000-$12,000 - assuming 15% for the year in some combination of interest and points. Since there is usually a 1 year seasoning period needed prior to refinancing, the loan would be needed for at least the full year.

Let's assume closing costs are $3k.

Purchase price + Rehab: $105k

Closing costs: $3k

Loan cost: $12k

...gives a total cost of $120k

The appraisal comes to $150k as expected and with the refinance, we are able to pull $105k out (70%).  

After we pay the total costs, we  are in the hole for $15k. 

I am under the impression that the appeal of a BRRRR is that you are able to pull all your money back out. Cashflow is assumed to be low.

It seems like a lot of work to leave money into a deal and not receive much cash flow. 

Please help me understand where my logic or calculations are off.  Thanks in advance!