BRRRR Calculating Help Please!

[Candace Ly]

Hello BP! I only just started my RE journey and have been listening to podcasts and reading. I am still pretty confused on how the BRRRR method works when it gets down to the nitty-gritty. If I purchase a property, rehab, and then refinance, won't the mortgage be higher and my monthly payments are higher? If the bank gets me a 75% LTV, I wouldn't have any more equity and will have a loan amount for the full 75% of my property's ARV value?? Could someone break down a hypothetical situation for me with numbers (see below)?

I don't have enough cash on hand to purchase a property in full, but I do have family members that could lend me the full amount/construction costs. I am also unsure how private money agreements are typically handled. Does the lender make money off of interest or at the end of the refi I give them a portion of profit? 

• Purchase price: $100,000
• Renovation cost: $50,000
• Cash borrowed from lender: $150,000
• Gets appraised for: $300,000
• Refinance for 75% of LTV: $225,000
• Monthly mortgage: ???
• Equity: ???
• Profit: $75,000(??) but not really since I would have been paying the lender interest?

If someone can explain to me clearly, I would really appreciate the help!! I'm struggling to understand the calculations. 

[Michael K Gallagher]

@Candace Ly in your example above is that you are all into a deal for $150K, or thats your pre-refinance number, if this is all cash, if its hard money, if its a private loan, it doesn't matter its just acquisition plus rehab cost is the all in cost. If your project appraises after the rehab for $300K, and you take out a 75% LTV mortgage on the property for $225K, then you pay off the private lender of $150K, and you are left with the $75K of debt that you are able to go do another deal with. Now you are paying for a loan on that $75K but the idea is that the return you are getting from rent on that 75K will be more than the interest you are paying on the debt.

The equity you have in the deal is still 25% because you took out 75% of the overall value or equity of the home.  Your monthly payment on that mortgage would be based on the loan you got from your lender, and the taxes/insurance in that area.  But the Idea being that the cashflow from the rent on the unit pays for that loan.  

If you want additional breakdowns I'd suggest the BRRRR book or even there are some great youtube videos on the subject on the BP channel.