How much does the BRRRR Method cost? How can I calculate my monthly payment with BRRRR? Indy example

by | Indiana real estate, Indy Anna, Real Estate Investing

What are the REAL costs of doing the BRRRR method, a real life example breakdown.

As an investor, the process of buying/refinancing (the BRRRR method) is something that you want to be familiar with.  There is a LOT of misleading and inaccurate information online about the real costs when doing BRRRR so this class is an in depth look at specific deals so you can see the real lift costs and how to calculate them yourself.   

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Now for today’s class on the BRRRR costs…

BRRRR costs and payments breakdown BigReia.com

How to calculate BRRRR payments? How much will the BRRRR method cost me each month?  A breakdown of BRRRR payments, fees and costs.

It’s no wonder the very top method from Forbes “Five Steps to Leverage Real Estate to Build Generational Wealth” is the BRRRR method.

https://www.forbes.com/sites/forbesbusinesscouncil/2020/09/02/five-steps-to-leverage-real-estate-to-build-generational-wealth/?sh=5f325a5c6428

Also you can download the above guide for FREE by clicking HERE.

This is a way for investors to get their foot in the door of REI, without leveraging all of their personal assets in terms of cash on hand. This method became a popular way for a younger generation to drive into the world of REI and not wait until years of accumulated wealth began- it opened up the doors for the under 50 years old crowd to get involved and soar beyond the previous generation in terms of REI.

Today I’ll cover the basic steps of calculation  of the BRRRR method from an ‘actual factual’ in the numbers breakdown.

I’ve reached out to a few of our  lenders to get feedback on this, BigReia.com/People, and I’m using a real world explain here to fully explain things; here’s what they had to say and our example

Indy Anna explains:

Upfront, short term costs to the BRRRR method

Long term costs to the BRRRR method

Real world example

The quick break down of this will be in 15 steps; beginning with the “BR” (Buy, Rehab)

1.) Property price – what you purchase the property for

2.) Rehab costs- how much it’s going to take to get it rent ready

3.) Upfront fees- title search + title insurance – sometimes split with the seller, other times not

4.) Fees for legal help or in some cases agent commission, yes even if buying and using your agent as a transaction negotiation in an off market deal at times

5.) ARV- the after repair value based on local and recent area comps

6.) After Repair Value ($)

7.) Cash (capital) required – how much money you’ll need

8.) Down payment- how much money you’re putting down upfront, your skin in the game

9.) Loan amount – percentage based – I’ll use 85% in terms of how much we are borrowing

10.) Interest rate- will vary on your criteria

11.) Short term interest rate- if using for acquisition and rehab

12.) Hard money points charged – I’ll use a percentage here as well

13.) Closing Costs – check out cash to close class after this one as well for a more in depth look here on closing costs

 14.Loan term- how long the loan will be for

  15. Holding terms- how long you’ll hold  it before renting it

Let me go ahead and get into specifics here on a deal from this week;

Property Price ($) 140,000

Rehab Costs ($)    52,000

Title Search + Title Insurance (%) paid by seller

Fees for legal help or agent (%) paid by seller

After Repair Value ($)250,000

Capital Required ($) 192,000

Down Payment ($) 28,800

Loan Amount (%) 85

Short Term Loan Interest Rate (%) 13

Hard Money Loan Points (%) 2

Closing Costs (%) 3

Loan Term (Months) 12

So that’s the front end of the deal, now we need to move on to the middle part of the deal; (The “R” for Rented)

The costs of RENTING are going to be covered in ten steps

1.) Monthly Rental Income ($)2000 – a duplex, see more on Indy duplex deals in my other class on this for more help after this one

2.) Property Insurance (%)0.8

3.) Property Tax (%) 2 – Indiana out of State investor, Indy tax cap rate, see other class on Indiana property taxes after this one for more information

4.) Property Management Fee (%) 3

5.) Vacancy Rate (%) 5 – we have renters lined up & ready to go but STILL factor something in for later

6.) Additional Costs ($) 300 the first few years we know there will be some things we need in most every case

7.) Total Rent Income ($) 2000

8.) Loan Repayments ($) 1046.15

9.) Total Rent Expenses ($) 416

10.) Cash Flow $537.85

Could our cash flow be higher if we don’t run into expenses, YES, but we bank in some here each month to ensure a safety net.

The third part now is the refinancing portion of things- ease back on the interest rates and get to the other “R”

The costs for REFINANCING will be covered in four steps

1.) Loan Interest Rate {long term} (%) 5

2.) Loan Term (Years) 30

3.) Long Term Loan Origination Fee (%) 2

4.) Closing Costs (%) 3

Our loan amount here is $163,200

Now, to make this SUPER clear for everyone to understand I’ll be putting this together in a before and after view;  (BRR, Buy- Rehab- Rent)

STL (Short Term Loan) amount = $163,200

STL (Short Term Loan) amount monthly payment = $1046.15

STL (Short Term Loan) amount of repayment = $12,533.85

STL (Short Term Loan)  fees = 8160.00

STL (Short Term Loan) costs = $20,713.85

STL (Short Term Loan) after 30 days in this case for rehab time, cash flow = $537.85

Once we move into the refinance portion of things; (Refinance)

LTL (Long Term Loan) Amount= $163,200

LTL (Long Term Loan) monthly payment = $876.09

LTL (Long Term Loan) repayment = $315,393.44

LTL (Long Term Loan) fees- may be rolled into the loan in some cases = $8160.00

LTL (Long Term Loan) total loan cost = $323,533.44

LTL (Long Term Loan) monthly cash flow = $707.91

Which brings us to the final “R”- Repeat – this is where we do it all over again to build up doors, and the true method of generational wealth building comes into play.

So to recap; we covered;

Upfront, short term costs to the BRRRR method

Long term costs to the BRRRR method

Real world example

So here’s the order of operations for the BRRRR Method:

1.) Purchase price of 140k + 52k or rehab = $192k (29k down)
2.) The ARV value is 250k so that is about 77% LTV
3.) Hard money is being used so there costs that I outlined above
4.) REFINANCE to get the cheaper money in, that refi will be for 200k or 80% of the 250k value
5.) Pay off the 163k loan and have 36k to walk away with to do the NEXT deal
6.) Rent the property out for 2k/month to help make the $1,400 payment on the 200k
7.) Do the same thing with the next deal to the next one…

Upcoming I’ll have a preview of our always FREE download and the adventures of our BigREIA friends, but for now

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Wanna Create Generational Passive Income Buying Real Estate and Small Businesses?

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