512% cash-on-cash return on one rental using BRRR strategy

[Omid A.]

Hi BP,

Wanted to share a successful BRRR deal I finished recently, it was actually my first time using the BRRR strategy instead of just flipping the house and I must say I am hooked. Also, the title of this post can be a little confusing or unrealistic to those who don't know what the BRRR strategy entails, those who are versed in it likely immediately realized the reason the cash-on-cash was so high was that such a small amount of my capital was left in the deal after the refinance.

If you scroll below you can see photos of the finished product.

Here are the details:

I bought a property that had on it 2 detached single family homes on 1 tax lot, the city and the bank recognized it as a duplex even though it technically isn't a duplex. I paid $200k using private money to fund the entire purchase price. I spent about $75-80k renovating the front and back unit completely with new everything. My all-in cost after all of the renovation cost, financing cost, utilities, refinance fees and closing costs was about $305,000. After renovation was complete, I rented out one unit for $1,650 and the other for $1,500 for a combined $3,150 per month on a 12-month lease. Total cash flow after accounting for PITI expenses ONLY is $1,282 per month. The yield would obviously be a little lower after accounting for vacancy, capex, PM but 1) for the time being I am self-managing and 2) the property is fully renovated and turnkey so capex should be very minimal for the first few years at least.

The bank appraised the property at $440,000 and allowed me to do a cash-out-refinance at 70% loan-to-value. I took out the full 70% which came out to $308,000, leaving roughly $3,000 of my own cash into the deal.

When you look at this deal through a cash-on-cash analysis the yield looks insanely high but what that analysis fails to account for is the amount of equity I left in the deal. That equity could have been cashed out and put to use if I flipped the property but instead is parked in this rental property so there is some opportunity cost there that brings my true yield down further if you factor it in to calculate the return on equity. However, if I had cashed out I would have to pay the capital gains tax on the earnings. It was a hard decision trying to decide which way to take this deal and ultimately decided to make a long-term play on it and keep it, I think I will thank myself for it in the future.