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Determine the After Repair Value (ARV)
First, determine the after repair value of the property. This is the estimated value of the property after the rehab is complete. For example, let's say the ARV is $200,000.
Calculate the Loan-to-Value (LTV) Ratio
Next, determine the loan-to-value ratio. This is the percentage of the ARV that the lender is willing to lend. For example, let's say the LTV ratio is 75%. This means the lender will lend 75% of the ARV, which is $150,000.
Calculate the Cash-out Refinance Proceeds
Now, calculate the cash-out refinance proceeds using the formula: Cash-out Refinance Proceeds = (ARV x LTV) - Outstanding Loan Balance. Using the example above, let's say the outstanding loan balance is $100,000. The cash-out refinance proceeds would be: ($200,000 x 0.75) - $100,000 = $50,000.
Calculate the Next Deal Equity
Finally, calculate the next deal equity using the formula: Next Deal Equity = Cash-out Refinance Proceeds - Rehab Costs - Closing Costs. Let's say the rehab costs are $20,000 and the closing costs are $10,000. The next deal equity would be: $50,000 - $20,000 - $10,000 = $20,000.
Avoid Common Mistakes
When calculating BRRRR, make sure to avoid common mistakes such as using the wrong LTV ratio or forgetting to include rehab costs and closing costs. It's also important to use accurate numbers and to double-check your calculations.
Use the BRRRR Calculator for Convenience
While calculating BRRRR manually can be helpful for understanding the formula, it can be time-consuming and prone to errors. For convenience, you can use a BRRRR calculator to quickly and accurately calculate the cash-out refinance proceeds and next deal equity.
Introduction to BRRRR Calculation
The BRRRR strategy is a popular real estate investment approach that involves buying, rehabbing, renting, refinancing, and repeating the process. To calculate the potential returns of this strategy, you can use the BRRRR calculator formula. In this guide, we will walk you through the step-by-step process of calculating BRRRR manually.
What is BRRRR?
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investment strategy that involves buying a property, rehabbing it, renting it out, refinancing it, and then repeating the process with the proceeds.
The BRRRR Formula
The BRRRR formula is used to calculate the cash-out refinance proceeds and the next deal equity. The formula is:
Cash-out Refinance Proceeds = (ARV x LTV) - Outstanding Loan Balance Next Deal Equity = Cash-out Refinance Proceeds - Rehab Costs - Closing Costs
Where:
- ARV = After Repair Value
- LTV = Loan-to-Value ratio
- Outstanding Loan Balance = Initial loan amount
Step-by-Step Calculation
Here are the steps to calculate BRRRR manually: