ROI for BRRRR Deal (Lower Appraisal = Higher ROI???)

[Garrett Christensen]

There are a lot of levels of a BRRRR deal. A "Full" BRRRR is usually referred to when the entire initial cash investment is pulled out at the refinance stage. In my deal's case we are pulling out almost, but not all of the initial investment and it's messing with my numbers. The other thing that makes this interesting is that I am in a high appreciation market and thus the cash flow isn't great.

Here's the simplified summary: 328k purchase price, 40k rehab, 75% LTV, 410k ARV, $400 yearly cash flow (I understand this is low)

With these numbers we will recoup all but 20.5k of our initial investment. That means the ROI is about 2.0%. If the property were to appraise for 390k though, the cash flow would be $1200/year and we would recoup all but 35.5k of out initial investment, making the ROI about 3.4% This goes against all my intuition as I'd obviously like the house to appraise for as much as possible, but in this case it's causing a lower return. Any insights on this?

Note: I understand that the cash flow numbers are low and that's likely what's causing this. Calculating the Cash on Cash ROI probably isn't the best metric in an high appreciation, low cash flow market, but I thought this was interesting and wanted to see if anyone had some advice for a situation like this.