[Inovestive]

[SAMPLE] Fictional preview material. This discussion was written by the site administrator to preview the Community design. Names, numbers and scenarios are hypothetical. It is not advice and not a real member post.

BRRRR means buy, rehab, rent, refinance, repeat. This is a hypothetical walk-through with made-up numbers to show how the pieces connect.

1. Buy: $190,000 (cash or short-term funds)
2. Rehab: $45,000 plus $8,000 in closing and holding costs, so about $243,000 all-in
3. Rent: $2,400/month once renovated
4. Refinance: appraised value $310,000; a 75% loan is $232,500

Cash left in the deal after the refinance is about $10,500 ($243,000 minus $232,500). At 7.0%, principal and interest on $232,500 is about $1,547/month. Add taxes ($150) and insurance ($115), plus reserves for vacancy (5%, $120), maintenance (8%, $192) and management (8%, $192): about $2,316/month total.

Cash flow: about $84/month, or roughly $1,000 a year on $10,500 left in the deal (about 9.6%). It works on paper, but the margin is thin: a half-point higher rate adds roughly $80/month and would erase the cash flow.

What risks would you stress-test first, and what would you do differently?

[Inovestive]

[SAMPLE REPLY – fictional preview, written by the administrator] The appraisal is the biggest risk. If this property appraises at $290,000 instead of $310,000, the 75% loan is $217,500 and cash left in the deal grows to about $25,500. Also check your lender’s seasoning rules, because many require you to own the property for a period before they will refinance on the new value.

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