Where is Your BRRRR Strategy Investment Calculator?
Are you conducting value-add strategies in real estate?
There are several investment strategies to choose from and choosing the right strategy for you could be challenging.
After you align your lender relationships, coupled with sufficient education, you can prepare yourself for performing the strategies most suitable for you.
Most investors purchase real estate that is already performing for cash flow.
This is commonly referred to as the buy and hold strategy.
Most of the time these are properties that are already occupied with tenants.
They don’t need renovations and they produce an effective return for the investor.
Meanwhile, other investors may conduct a value-add strategy, commonly known as either ‘ fix and flipping’ or the ‘BRRRR’ strategy.
- The BRRRR strategy stands for Buy, Renovate, Rent, Refinance and Repeat.
The BRRRR Strategy
In the BRRRR strategy, the investor is performing multiple evaluations methods.
These evaluations include:
- Performing the proper entrance, with the right purchase price, based upon renovations and after-repair-value (ARV).
- Evaluating the cost of repairs and the amount of holding time necessary to complete the project.
- Whether the property will cash flow after moving from short-term financing to long-term financing.
- Determining if the out-of-pocket cash invested, will be returned to the investor after the cash out refinance is completed (so that the strategy can be repeated).
As displayed here, the level of detail is very important.
Therefore, your BRRRR Investment Calculator tool needs to adequately support your comprehension of each step by displaying enough detail.
The Importance of Detail
One could easily say the BRRRR strategy is a combination of the fix and flip strategy, and the buy and hold strategy.
- In addition to altering the loan strategy; an evaluation on the after-repair-value, compared to the renovation and invested capital, as well as if the property will cash flow, needs to be evaluated in it’s entirety.
Within this evaluation, there are multiple factors that matter in order for the project to meet expectations.
- If you don’t have a tool to properly evaluate every portion of the project, you cannot identify, illustrate, improve, teach and improve your evaluation skills.
You need a tool that displays enough detail for you to implement minor adjustments, as necessary.
- Gain better comprehension while you evaluate a prospective project.
Our BRRRR calculator will allow you to not only comprehend the full process, it can help you and your team become better communicators and performers.
Being a Microsoft Excel file, you can save this tool in your projects’ folder for future reference, and share the entire projects’ plan with anyone you are partnering with.
- Have the ability to go back and review your initial evaluation and compare it to your final results.
Having a centralized tool to reference, helps everyone to see the plan, improve the plan, and contribute to the plan as a team.
Here is what you’ll get with this tool:
- Full visibility to each line-item repair within your scope of work.
- Ability to input lender leverage ratios that determine if thresholds meet expectations – knowing if you’ll need to bring more or less cash to closing.
- Evaluate all your costs from renovation, to renting, to closing with your long-term loan product.
- The ability to determine if your product will cash flow.
- Illustrate all considerable metrics to determine if targets are met.
- See your rates of return, cap rate, cash flow and recuperated capital.
- Ability to display the detail within every portion of the project for better engagement, learning and partnership purposes.
The tools we use are very instrumental in the ability to see the plan and improve performances.
For only $16.99, get your BRRRR Investment Calculator today!
See a tutorial of it’s operation here on our YouTube page–
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What is the 70% rule for BRRRR?
The 70% rule is in reference to your entrance strategy. The 70% rule formula, or 70% of ARV (after repair value), minus repairs, provides a entrance that helps support your original loan being paid off at the point of refinancing.
- If you enter at 70% of the ARV minus repairs, and your ARV and repair estimates hold true, you should not have trouble refinancing at 75% or 80%.
Be sure your DSCR (debt service coverage ratio) also meets the expectations of your lender before taking on the project.
What is the 1% rule in BRRRR?
The 1% rule is a ratio formula that references the gross monthly income to the purchase price of the property, respectively.
- If gross rent is $1,000 and the purchase price is $100,000, $1,000 of $100,000 (or $1,000/$100,000) is 1% ( or .01).
Using this rule, you’d take the future projected rent, post renovation, and the refinanced amount, to see if it meets the 1% rule.
How much do I need for the BRRRR method?
Always confirm costs with your lender.
Here are some likely out-of-pocket costs to plan for:
- Down payment at entrance.
- Closing costs at entrance.
- Renovation funds for the draw process.
- Holding costs during the renovation.
- Holding costs throughout pursuit of tenant occupancy and the seasoning period (as applicable).
Use the BRRRR Investment Calculator for exact figures.
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