Madison Wisconsin looking for guidance doing the BRRR strategy

[Lee L.]

Hi, I found a place, got a pre approval, have an agent showing me the place, know what it's previously rented for, done my market research for what it could rent for.

Questions are:
Is the refinance loan always  70% of re-appraised value or is it 80% for Madison/Wisconsin?  
Is a deal typically not worth doing if you can't get an appraisal / refinancing goal to completely pay back your out of pocket cash and initial loan? hoping to see real examples of Madison Wisconsin. I'm currently looking at 725-727 Vernon ave  and 113-115 Georgiana circle  Madison Wisconsin and could use some assistance going through the examples.  From what I'm seeing I'll have to put down 25% down payment (this is normal for rental real estate apparently)  on a 315,000 dollar house that's about 80k so the initial loan is about 240k    lets say i get the value of the property to re-appraise for 375,000 and i take out a 70% refinance loan that is about 260k  that nets me 40-50k cash, but i could foresee cash on cash return of +250-400 dollars from income.  

The mere fact i wouldn't be able to pay off the initial loan + cash loan would indicate to me this would be a no go deal, but I think there is something I'm forgetting to do? Is there a shortcut to understanding what deals to pursue? what i should be looking for in 2-4 unit properties?

[Marcus Auerbach]

Where would the increas ein value come from? Vernon looks move in ready and I did not see you mention a repair budget. Refi LTV is usually 75%.

I have been doing BRRRR's for over a decade in Milwaukee and it has gotten very difficult in the last years to recycle cash; I left a substantial amount of money in every single project over the last 2 years. I knew that when I signed the deals and to me personally it is still worth it because the properties are now compeltely updated and ready for the next couple decades.

So while the market makes it very difficult to create enough delta between initial purchase price and ARV to pay for 50-70k remodel expenses and create 25% equity, the current market does provide for tailwind via general appreciation, something we have not had in the past.

When you are looking to BRRRR a duplex you will look for a property that needs substantial work and will therefore sell for a big discount. At a 400k ARV you will have to buy for under 250k. The best way to make the numbers work is to limit the work to cleaning, paint and carpet and avoid expensive projects like roof, windows, replacing plumbing and electrical systems, driveway etc - as these take huge amounts of capital, but will typically not drive up the ARV by much. You can still choose to do so, so you are not just deferring the cost to a couple years later, but know that this will eat into your equity.