An Example of the BRRRR Buy Box
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This framework can save your entire rental property from failure. Here’s an example of the BRRRR Buy Box.
What is a “BRRRR Buy Box”? It’s a set of parameters to keep your BRRRR on track to a successful, profitable refinance.
Let’s take a look at the contents of your Buy Box.
What Is the BRRRR Buy Box?
What’s in your BRRRR Buy Box? There are four important numbers:
- What is your minimum cash flow requirement? Not only yours, but what is your lender’s minimum net cash flow for you to qualify?
- What amount, if any, do you want to put into the property? This is money that you’re willing to keep in the property. You don’t get it back out at the refinance.
- What’s the maximum loan you feel comfortable with? What do you qualify for? What fits your cash flow requirements for this particular market?
- What’s your maximum amount for purchase and rehab? These numbers are vital to keep you in-budget with cash flowing.
Let’s go through an example of what a BRRRR Buy Box would be.
Example BRRRR Buy Box
Cash Flow Requirements
Let’s start with the first question. Say your minimum needed cash flow for a property is net $500 per month.
This is your first criteria, so you want to make sure every property you look at would cash flow $500/month. To predict cash flow, you can approximate rent in the area of the property, as well as estimate the monthly mortgage payment and other costs.
If you know you can charge $2,000 for rent, but your loan, taxes, and insurance will equal $1,450, then you can predict a $550 monthly cash flow.
Cash Put into the BRRRR
How much money do you want to put in? On one hand, people do BRRRR for the appeal of zero down properties. On the other hand, some people want to put as much in as possible at the beginning to keep loan payments down and cash flow up.
Having a target number helps you better set up your refinance.
The maximum loan doesn’t always mean the highest possible loan you qualify for. Rather, it’s the loan that works best for the property and the situation.
What is the maximum leverage you could use and still meet your cash flow requirements and the bank’s refinance guidelines?
Most banks will refinance you on rate-and-term from 75 – 80% of the appraised value, as the house sits after you’ve bought and rehabbed it. Cash out refinances cover somewhere between 65 – 75%. That may be too much for your particular area, or not enough. It’s important to understand the maximum loan for your particular deal.
Purchase and Rehab Budget Example for BRRRR Buy Box
Finally, what is the maximum amount of money you can put into the purchase price and rehab? What budget fits in your buy box?
Remember that on top of the purchase and rehab, you’ll still have carry costs and closing costs. All of these numbers will have to fit within your budget.
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