[Calc Review] Help me analyze this deal

[Brenden Mitchum]

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*This link comes directly from our calculators, based on information input by the member who posted.

Could anyone explain to me why CoC goes down when I reduce the time to refi. This seems incredibly counterintuitive to me since less time with hard money would mean less cash in the deal so higher return, no? Also, would I really need to show up to the hard money lender with $50 grand? I am just trying to wrap my head around this brrr strategy and how to actually make it work. Any help would be much appreciated!

[Richie Thomas]

Brenden, the acquisition loan amounts appear incorrect.  What I've seen most people do is fund the purchase and rehab with a hard-money loan, with an interest rate of 9-12% and 6-12 months of interest-only payments, followed by a balloon payment of the principal balance at the end of the term.  Amortization doesn't come into play here, because a) you're making interest-only payments, and b) there's that balloon payment I mentioned.

Here, you've set an amortization period of 1 year, meaning you're paying off the full $169k over 12 months.  That's why your monthly P&I is so high, and why your monthly cash flow is so low.  That monthly P&I figure of $15,090 includes both principal and interest, which is why it's so huge.

The goal of BRRRR is to fund the deal with the kind of loan which is friendly toward rehabs, and then refinance out of that as soon as possible (since those loans are relatively expensive). This refinance only takes place after completing the rehab and getting the property appraised at the new, (hopefully much) higher value.

Try revising your analysis so that the purchase loan is interest-only for the same 12 months, and see what happens.  Also, assume it'll take you more than 1 month to rehab.  I have no idea what improvements you have in mind, but I agree with the comment above that $40k implies a much larger scope of work.  Try 3, 4. and 5 months as a series of experiments, and see what that does to your calculator output.