When to Rehab to Flip Vs. BRRRR

[Rachel Trimble]

Scenario:

70% ARV - repairs= purchase price

70%($190k)- $80k = $30k

Purchase price: $30k

Repairs: $80k

All in: $110k of cash purchase plus repairs.

Market rent for 3/1 in area: $1200

To BRRRR you want the appraised value to be 100x the market rent. This is the problem I'm encountering. If the bank will loan up to 75% LTV, the max cash out will be $47,500, correct? Therefore I won't recover my cash outlay. The new loan will be$142,500.

So, if we wanted to get all of our cash out it would have to be appraised much higher or require significantly less cash in repairs. This is why this would only make sense as a flip. Because even if I were willing to leave some cash equity in the deal, I would still be looking at a new ARV of $190k, so with a $1200 market rent rate, I won't be cash flowing.

Does anyone have a calculator or strategy for knowing when to BRRRR vs. straight up flip? I would like to hold on to my properties more long term, but if flipping make sense for these distressed properties, that may be what's best for right now.

There should be an equation to compare these 2 strategies. I'm just hoping there's a genius on here that's done the math! Thanks in advance for any help.

[JD Martin]

The banks I work with do 75% LTV after 6 months. Using your numbers:

ARV: $190k. 75% LTV: $142.5 Original cash in: $110 Net cash out: $32.5

I'm not sure where you got the $47.5 figure. That would be based on $63k, and I don't see that number in your figures.

As far as when to flip vs. hold, that's part of your own strategy. There are tax considerations, replacement considerations, long-term strategy considerations that no one here can answer. Short-term flipping has some high tax consequences that you need to consider. Are you looking for short-term wealth or long-term cash flow? Are you in a inclining or declining market?