BRRRR refinance math: will you get your cash out?

BRRRR is buy, rehab, rent, refinance, repeat. The question the refinance step has to answer is narrow: after the work, does a new loan give you back the cash you put in? The report answers that with a fixed set of assumptions. This page writes those assumptions down and runs two examples, one where the cash comes back and one where some cash is still stuck in the house. Both examples use round inputs so you can repeat the arithmetic. They are not closed loans and not a claim that a lender will offer these terms.

The assumptions, with nothing softened

The purchase is treated as all cash. If you already have a hard-money loan, this worksheet does not subtract that payoff. It assumes the cash in the deal is still yours to recover. Cash in equals the purchase price plus the rehab. Buyer closing, which the flip projection counts at 3 percent of the purchase price, is not in this cash-in figure. If you paid closing costs in cash, add them yourself or the “cash back” number will be optimistic.

The new loan is 75 percent of the after-repair value, rounded to the nearest dollar. Cash back is that loan minus cash in, and it is never shown below zero. Cash left in the deal is cash in minus that loan, and it is never shown below zero. One of those two is always zero. You cannot, in this formula, receive cash back and still have cash left in. There is no interest rate, no payment, no seasoning period, and no refinance closing cost. A lender who loans 70 percent, or who will not lend on the after-repair value until a season has passed, is a different loan than the one this page computes. Replace 0.75 with their loan-to-value and do the subtraction again before you rely on it.

Rent is an estimate, not a signed lease. It is the average of 1 percent of ARV and $1.25 per square foot of living area. Each of those two pieces is rounded to the nearest dollar, then the average is rounded. If square footage is zero, both pieces use 1 percent of ARV, so the result is that 1 percent figure rather than a blank. The annual net used for cash-on-cash is half of a year of that rent. That is a 50 percent expense share for taxes, insurance, maintenance, vacancy, and management, and it is not rounded before the division. Cash-on-cash is that annual net divided by the cash still left in the deal, then rounded to one decimal percent the same way as flip ROI: round(net / cash left × 1000) / 10.

Example where the refinance returns cash

Use the purchase price from the 25/5/3 offer so this example lines up with the MAO calculator. ARV is $200,000. Rehab is $40,000. Purchase is $94,000. Living area is 1,500 square feet.

• Cash in is $94,000 + $40,000 = $134,000. Closing costs are not included.
• The new loan is 75 percent of $200,000, which is $150,000.
• Cash back is $150,000 − $134,000 = $16,000. Cash left in the deal is $0.
• Rent from ARV is 1 percent of $200,000, which is $2,000.
• Rent from size is 1,500 × $1.25 = $1,875.
• Monthly rent is the rounded average of $2,000 and $1,875, which is $1,938.

Because no cash is left in and the loan returned $16,000, the result is marked fully returned. The cash-on-cash percent is not reported as a yield. Dividing income by zero dollars left in the deal is not a 0 percent return, and it is not an infinite return. The $16,000 is cash the formula says came back. It is not profit. You owe the $150,000 loan, and the formula never priced the payment on that loan. If the payment is larger than the rent you can actually collect, the refinance “worked” on cash-out and failed on the monthly bill. This page will not catch that. It does not have a rate to multiply.

Example where cash is still in the deal

Change the purchase and the rehab so the loan cannot cover them. ARV stays $200,000. Purchase is $120,000. Rehab is $50,000. Living area is 1,200 square feet. Cash in is $170,000. The loan is still $150,000. Cash back is $0. Cash left in the deal is $170,000 − $150,000 = $20,000.

Rent from ARV is still $2,000. Rent from size is 1,200 × $1.25 = $1,500. Monthly rent is the average, $1,750. A year of rent is $21,000. Half of that, the annual net, is $10,500. Cash-on-cash is $10,500 / $20,000, which rounds to 52.5 percent. That 52.5 percent is the return on the $20,000 that is still stuck, not on the $170,000 you spent. The other $150,000 came back as debt. Quoting 52.5 percent as if it were the return on the whole project overstates the deal. Say “52.5 percent on the $20,000 left in” or do not say the percent at all.

The rehab number is the whole sensitivity. A scope you priced at $40,000 and built at $50,000 is $10,000 more cash in, which comes straight out of cash back or straight onto the cash left in. Write the scope before you trust either example. The scope of work checklist is the list behind the rehab field. A wholesale fee you paid on top of the purchase is also cash in, even though this formula’s purchase slot does not have a separate fee line. Add the fee to the purchase price before you run the test. The assignment-fee worksheet is how that fee was priced from the buyer’s ceiling in the first place.

What a fully returned result does not promise

It does not promise an appraisal at your ARV. The loan is 75 percent of the ARV you typed. If the appraisal comes in lower, the loan shrinks and cash back shrinks with it. It does not promise a renter at 1 percent of ARV or at $1.25 a foot. Those are the two inputs the average is built from, and a lease you have in hand should replace the estimate. It does not model vacancy beyond the 50 percent expense share. If you already itemized taxes and insurance, do not also keep the full 50 percent or you will expense them twice.

The long-term rental card elsewhere in the product is a different ratio. The cap rate worksheet walks that rental arithmetic, including the gross rent multiplier. It treats expenses as 45 percent of gross rent and divides the remaining net operating income by purchase plus rehab to get a cap rate. That denominator is all of the cash you put in, not merely the cash the refinance failed to return. A cap rate and a BRRRR cash-on-cash percent answer different questions. The cap rate asks what the asset earns on the money it took to create it. The cash-on-cash percent asks what the leftover dollars earn after the loan. A deal can look ordinary on the first and extreme on the second, as the 52.5 percent example does, because the second percent ignores the repaid principal.

Use the first example as a pattern when you want to know whether a given purchase and rehab are even in range of a 75 percent loan. Use the second when you want the percent labeled correctly. If you need a payment, a rate, or a lender’s actual loan-to-value, add those outside this page. Leaving them out of the formula is deliberate. Inventing a rate here would present a payment the report does not calculate.

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