BRRRR General Rules of Thumbs

[Kevin Mahoney]

I am interested to learn more about some general rules of thumb for refinancing BRRRR properties depending on cash flow. What have been typical loan interest rates and refinance rates you have personally experience. How much did it affect your cash flow monthly? What rules of thumb did you use to know that it was a good choice to refinance and not just buy and hold as a rental.

I am looking to get started in the Midwest and was curious to hear other peoples stories and experiences as I continue to learn more every month. I would like to BRRRR my first property in the next year or so and would love to hear about some real world examples to compare to my calculations to make sure I am not missing anything. I have been researching lots of properties in Cincinnati, Cleveland, Columbus, Indy, & Chicago area suburbs.

[Whitney Hutten]

@Kevin Mahoney Here are my underwriting factors (I think that is what you are actually driving at, as interest rates are just one figure in the calculation for returns).  I aim to purchase C+/B properties that are $90-150K, and will rent for $900+ (ideally $1100+).  

1. I try to be all in at less than 80% ARV. Ideally, 70% ARV. However, I am willing to leave $5-10K in a deal if everything else is holding and my capital is well-preserved.

2. Cash on cash - 15%+ for BRRRR. Ideally 20%+.

3. Cashflow - $150/door.  Ideally, $200.

4. DSCR - 1.25 (this is a non-negotiable me)

5. Rehab - <$30K.  This is a rule of thumb that keeps me mostly in the cosmetic / mechanical realm and timelines under 4 weeks.

6. HOAs - None

7. Taxes - <$120/mth

8. Owner-occupied > 70%

9.  Schools - Rating of 5+ with parent rating of 4+ stars. 

I have other building parameters, but this is the gist of my underwriting parameters.

These parameters are pretty achievable in the markets you are looking at outside of Chigaco.  Chicago fundamentally has some financial issues and incredibly high taxes.  However, there is the Chicagoland area right across the border in Indiana... I'd look there.