BRRRR analyzation concept

[Gerald Donaire]

Hey BP!

I’m getting better at analyzing deals and find it in me to push myself to understand fully why the numbers work in their respective way with each strategy. Rental property analysis being the easiest and then fix and flip analysis comes pretty easy to me as well.

I'm having trouble grasping the concept of BRRRR and why the numbers are ought to be ran a specific way. I understand that it runs as a "two-legged loan", and my first loan would usually be hard money or private money terms (70%LTV +12% Interest Only) + fixed costs. Now with the Refinance part of the analyzation, I understand the PITI is based off the ARV, does that mean I would not have to account for a down payment considering forced equity of 30%?

I would appreciate any help given, thank you I’m advanced!

Gerald Donaire

[Moises R Cosme]

Gerald, 

There should be two separate calculations & I would run the numbers as a flip NOT as a prospective rental. Generally, this formula should work for you: 50% of ARV as acquisition price, max 17.5% of ARV as renovation and total transaction costs; this should get you to 68% of ARV by the time you are ready to re-finance, at this point you should not have to bring any money to closing since you have the requisite 25% equity & room for the closing costs on the new loan (also possible for you to get a little extra if you have left the room).

Things to account for when you purchase the property:  full loan payoff (s), down payment for purchase, closing costs for purchase, additional cash fees (wholesale fees, etc.), resale closing costs and carrying costs.  All of this has to equal 75% or less than the after rehab value and if you are at 75%, expect to have to come to closing with money for the closing costs on the new loan.

I hope this helps!!! If it does, I would appreciate a vote.