How a BRRRR Deal Calculator Helps Real Estate Investors
Do you know what sets apart an investor succeeding in BRRRR investing from someone with money locked up in a failed deal? Mostly, it is because they performed an accurate calculation before making their decision.
What if you are a first-timer or you don't have time for doing math for real estate investing? It's highly likely that you'll end up in a huge loss. But wait... There is a tool which can help you make informed decisions and its none other than a BRRRR calculator.
To help investors run their numbers accurately, we'll share key insights, formulas, outputs, and pitfalls of using a BRRRR deal calculator. Let's delve in.
What is a BRRRR Calculator?
BRRRR deal calculator is a synchronized method where you input your specific information about the property's purchase price, rehab expenses, rental income forecasts, and refinancing projections to get a full financial sense of your deal.
This tool helps to answer all necessary questions for any BRRRR investor: What is the total amount of investment? What will be the amount that could realistically be refinanced out? What part of your money will be left after refinancing? How will your monthly cash flows look after your loan? What is the profit from leftover capital?
In absence of such a calculator, you'll only be making wrong guesses in your calculations that could cost you heavily.
The Major Inputs You Need Before Crunching Numbers
You need to gather five important inputs before your calculator start the work.
Purchase Price: It refers to the price you have agreed to pay to purchase the property. For the BRRRR process, you should always be looking for a discount from market price, and this is why purchase price plays such an important role.
Rehab Costs: It is the estimated cost of transforming the house into a rentable state. Investors usually make wrong assumptions here. Go with your contractor to walk through the property and break down the items to be renovated, such as roof, HVAC, electric, plumbing, finishes. Always add a contingency of at least 10% to 20%. Never base your numbers on a single contractor quote.
Closing & Carrying Costs: It is the collection of fees paid to the lender, title company, inspection services, legal fees, and the carrying costs you pay when the rehab is in progress, including insurance, taxes, and interest on short-term funding. This represents money spent out-of-pocket that often gets overlooked by investors.
The After Repair Value (ARV): ARV is the anticipated market value of the property once all renovations have been completed. It is the core number involved in the entire BRRRR equation. Get comparable sales data of properties located within half a mile radius from the past three to six months. Pick a conservative ARV, not the upper limit you dream about but a realistic middle point. When the deal relies heavily on the highest possible ARV, it's a red flag.
Market Rent: It is the amount that a qualified renter would pay for the renovated property. Use current rental listing information in the immediate area for a property with same number of bedrooms and bathrooms and similar condition. Choose the conservative number.
Step By Step Calculations
With the numbers in hand, there is a certain order in which the calculator does its calculations. Each calculation process is detailed below.
All-In Cost
It is your actual cost of ownership before your refinance starts. Here is the formula that will help you calculate the exact number.
All-In Cost = Purchase Price + Rehab + Closing Costs + Carrying Costs
It is the figure that must be beaten or at the very least covered by your refinance.
Refinance Loan
It varies depending on the lender's loan-to-value percentage. The typical lender for cash-out refinances allows from 70 to 75 percent of the ARV for financing. Portfolio lenders may give as much as 80 percent.
Refinance Loan = ARV × LTV
Cash Left in the Deal
This is what your calculator calculates. Below is the simple formula that help you find the exact number.
Cash Left In = All-In Cost – Refinance Loan Amount
A negative amount indicates that you pulled out more than you invested. A small positive number, such as less than 10% to 20%, show that this is a well-performed BRRRR when cash flow is good. The large positive number indicates that capital is tied up and BRRRR starts looking like traditional rental investing.
Monthly Cash Flow
It will let you know if the deal produces positive income after considering all costs, which include the newly acquired refinance mortgage.
Monthly Cash Flow = Gross Rent − (Mortgage Payments + Taxes + Insurance + Property Management + Vacancy Allowance + Maintenance + Capital Expenditures)
Do not underestimate any of the cost categories; it is by underestimating vacancy or neglecting capital expenditures that the investor ends up cash-negative after the first big fix-up.
Cash-on-Cash Return
It calculates your annual return based on your remaining cash in the deal.
CoC Return = (Annual Cash Flow ÷ Cash Left in Deal) × 100
To further explain what a cash-on-cash return is trying to achieve and its benchmarks for a decent deal vs. a good deal, check out the article BRRRR Strategy Explained.
What a Good Result Will Look Like
Using the calculator is meaningless if you don’t understand how to decipher what comes out of it. Here’s what it looks like when a good output is obtained.
The negative cash flow from the investment tells us that the investor withdrew more money from their original investment, resulting in a total capital turnover. The monthly cash flow of $278 after all expenses creates an infinite cash-on-cash return because there is no longer any money left from the initial investment.
This is what the accurate numbers look like when they work in your favor.
Common BRRRR Calculator Mistakes to Avoid
Here’s a list of mistakes which you need to avoid while using BRRRR calculator.
Underestimating Rehab Costs: It is by far the biggest deal-breaker when it comes to BRRRR investing. You need to account for possible problems beyond cosmetic flaws because they'll make you exceed your all-in cost from set ARV threshold.
Utilizing Optimistic ARV: It means the estimated refinancing amount based on that number won’t match what you’ll actually get in the end after the assessment, making you lose some funds in this difference.
Ignoring Carrying Costs: If you forget the carrying costs while completing the repair, then the deal can exceed the budget quickly. Holding costs during the renovation period should include six months’ worth of interest, taxes, and insurance.
Omitting Expense Line Items: When you skip expense line items in your calculations, such as vacancy allowance and reserve for replacement expenses, your projections will fail within the first year after purchasing.
Ignoring the Requirements of the Lender: You can miss important things like seasoning requirements. Some lenders need six to twelve months' seasoning, while others only ask for three.
Final Words
A deal without analysis fails to beat a competing offer. A deal that is analyzed quickly, but incorrectly, is simply an abrupt error.
The top BRRRR investors analyze clean data fast. They don't look at asking price until they have identified their ARV range. They establish rehab cost models for each type of real estate. The lender connections are set up before the closing process. When the investor opens a calculator, they already know the values, and the result is either a confirmation or rejection of the deal.
The BRRRR Analyzer by BrrrrSimply has been designed by investors with thousands of closed deals, and a portfolio of over 950 units in total. It completes each calculation in under 60 seconds, from total cost to cash-on-cash ROI and equity position.
