Does BRRRR Work When Not a Cash Purchase?

[David Rogers]

I'm in contract on an SFR and have hit a snag with my projected BRRRR strategy. My question is, does BRRRR work if the initial purchase is with a standard 20% down investment loan? It seems to me that much of my cash flow is eaten up when I refinance at the higher value. I get a lump sum of cash short term (basically everything I put in) but cannabalize my cash flow long term. Is this right or are my numbers off? Am I calculating the refinance numbers correctly? My capex is 10% gross rent; repairs and vacancy are both 5% gross rent.

Here's my projected numbers on the initial purchase:

Purchase Price: 105,000 [ARV = 150,000]

Down Payment: 21,000

Closing: 4,000

Repairs: 7,000

[32,000 out of pocket]

Rent: 1,200

Mortgages, Taxes, Insurance: 839.40

Capex, repairs, vacancy: 228.00

Cash Flow: 132.60

Numbers AFTER Refinance:

ARV: $150,000

$150,000 * 20% = 30,000

$30000 (new down payment for ARV) - $21000 (previous equity from original down payment) = $9000

I've forced $45000 in value and have to leave $9000 for the new 80/20 LTV ratio, plus another $4000 for closing costs, $13000 total. $45,000-13,000 = $32000 cash out.

Projections for post-refinance:

Purchase Price: 150,000

Down Payment: 30,000

Closing: 4,000

Repairs: 7,000

Rent: 1,400

Mortgages, Taxes, Insurance: 1072.34

Capex, repairs, vacancy: 266

Cash Flow: 58.16