The BRRRR strategy, an acronym for Buy, Rehab, Rent, Refinance, Repeat, is a popular real estate investment approach designed to maximize capital efficiency through the cyclic reinvestment of capital from refinanced properties. The BRRRR Free Calculator is an invaluable tool for real estate investors looking to implement this strategy effectively. It aids in the precise evaluation of potential properties by forecasting critical financial outcomes.
Purpose and Functionality of the BRRRR Calculator
The BRRRR Calculator simplifies the complex financial assessments involved in a BRRRR investment by inputting key financial metrics and calculating the potential returns. This tool helps investors determine whether a property is worth investing in under the BRRRR strategy by providing detailed insights into costs, returns, and financial viability.
Key Inputs and Formulas:
- Purchase Price: The cost of acquiring the property.
- Rehab Costs: Expenses incurred to renovate the property.
- After Repair Value (ARV): The property’s estimated market value after renovations.
- Monthly Rent: The expected rental income.
- Loan Amount: Generally up to 75% of the ARV.
- Interest Rate and Loan Term: The terms of the refinancing loan.
Using these inputs, the calculator performs several crucial calculations:
- Total Initial Investment = Purchase Price + Rehab Costs
- Cash Out Refinance Amount = ARV × Loan-to-Value Ratio (commonly 75%)
- Monthly Mortgage Payment, calculated using the formula for an annuity:𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝑀𝑜𝑟𝑡𝑔𝑎𝑔𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡=𝑃×𝑟(1+𝑟)𝑛(1+𝑟)𝑛−1Monthly Mortgage Payment=P×(1+r)n−1r(1+r)n
- Net Cash Flow = Monthly Rent – Monthly Mortgage Payment
- Cash on Cash Return = (Annual Net Cash Flow / Total Initial Investment) × 100%
Step-by-Step Example
Consider a property with the following parameters:
- Purchase Price: $100,000
- Rehab Costs: $20,000
- ARV: $150,000
- Monthly Rent: $1,500
- Interest Rate: 5% per annum
- Loan Term: 30 years
Calculations:
- Total Initial Investment:$100,000 + $20,000 = $120,000
- Cash Out Refinance Amount:$150,000 \times 0.75 = $112,500
- Monthly Mortgage Payment:$112,500 \times \text{monthly rate for 30 years} \approx $603.25
- Net Cash Flow:$1,500 – $603.25 = $896.75
- Cash on Cash Return:($896.75 \times 12 / $120,000) \times 100\% \approx 8.97\%
Relevant Data Table
| Description | Value |
|---|---|
| Purchase Price | $100,000 |
| Rehab Costs | $20,000 |
| ARV | $150,000 |
| Monthly Rent | $1,500 |
| Refinance Amount | $112,500 |
| Monthly Mortgage | $603.25 |
| Net Cash Flow | $896.75 |
| Cash on Cash Return | 8.97% |
Conclusion
The BRRRR Free Calculator is an essential tool for real estate investors utilizing the BRRRR strategy. By providing detailed financial analyses, it helps investors make informed decisions, ensuring that each investment aligns with their financial goals. The calculator’s ability to forecast cash flow and returns makes it indispensable in evaluating the potential profitability and sustainability of property investments under this strategy.