The BRRRR calculator is a powerful tool that helps real estate investors determine the viability of the Buy, Rehab, Rent, Refinance, Repeat (BRRRR) strategy. It allows investors to analyze various financial aspects of a potential real estate investment, providing insights into profitability and return on investment. Let’s delve into the essential components of this calculator.
Formula of BRRRR Calculator
The BRRRR calculator relies on several key formulas to provide a comprehensive financial analysis:
Spent (Invested):
Money Spent = Purchase Price + Rehab Costs + Closing Costs (when buying and refinancing) + Holding Costs (such as property taxes, insurance, and utilities during the renovation and rental period)
Recovered (Refinanced):
Money Recovered = Loan Amount (from refinance) – Remaining Mortgage Balance (if any) – Closing Costs (when refinancing)
Cash Flow (Monthly):
Cash Flow = Rental Income – Monthly Expenses (property taxes, insurance, property management fees, maintenance, utilities, etc.)
Return on Investment (ROI):
ROI = (Annual Cash Flow / Total Money Spent) x 100
Now, let’s simplify these calculations for practical use.
Simplified BRRRR Calculator Table
To make the BRRRR calculator more user-friendly, here’s a simplified table that includes general terms commonly used in real estate investment:
| Term | Calculation |
|---|---|
| Purchase Price | Enter the initial purchase price of the property. |
| Rehab Costs | Include all expenses related to property rehabilitation. |
| Closing Costs | Account for closing costs during both purchase and refinance. |
| Holding Costs | Sum up expenses like property taxes, insurance, and utilities during holding. |
| Loan Amount (Refinance) | Specify the loan amount acquired during refinancing. |
| Remaining Mortgage Balance | Enter the outstanding mortgage balance (if any). |
| Rental Income | Include the expected monthly rental income. |
| Monthly Expenses | Sum up all monthly expenses associated with the property. |
With this table, investors can easily input their financial data and obtain quick results.
Example of BRRRR Calculator
Let’s illustrate how the BRRRR calculator works with a practical example:
Suppose you purchase a property for $150,000, spend $30,000 on rehab, and incur $5,000 in closing costs. Holding costs amount to $2,500. After rehab, the property’s appraised value increases, allowing you to refinance it for $200,000. Your remaining mortgage balance is $120,000, and you anticipate a monthly rental income of $2,500. Monthly expenses, including taxes and utilities, total $800.
Using the BRRRR calculator, you can determine your monthly cash flow and ROI based on these numbers.
Most Common FAQs
The calculator is highly accurate when provided with precise financial data. It relies on a straightforward formula and can be a reliable tool for real estate investors.
Yes, the calculator can be used for both residential and commercial properties. It is versatile and applicable to various real estate investment scenarios.
While the strategy can be lucrative, it’s essential to have a solid understanding of real estate and finance. Beginners should consider seeking advice from experienced investors or professionals.