If the refinance only gives me half my money back, have I done BRRRR wrong?

Half back and no cash flow is a different animal from half back and 300 a month. Which one is your practice deal? Because the version I'd never do is the one where I've tied up 60k and I'm working weekends on a rehab for a property that breaks even.

Decide it before you buy by underwriting two refinance cases and requiring the deal to survive the bad one.

Case A is your hoped for appraisal at the LTV your lender quotes. Case B is the appraisal ten percent light at an LTV five points lower, priced 75 basis points worse. If case B still leaves the property covering debt service plus vacancy plus reserves, the deal is real. If case B needs you to bring cash to the closing table, you have a deal that only works if nothing goes wrong, and appraisals go wrong constantly.

On your listing: 165k plus 40k rehab is 205k before closing, carry, and the overrun that will happen, so call it 222k all in. 75% of 250k is 187,500. That is roughly 35k stranded against maybe 55k in, so 64% recovery in the good case. Now run 225k ARV at 70%, which is 157,500, and you are 65k in the deal. Can you live with that outcome? That's the question, and the answer is a number you pick, not one the market gives you.

@sextant that two case thing is how the people I've been talking to on the money side describe it too, they just call the second one the downside case and refuse deals that need the upside one. Worth adding that if you go looking for a partner to cover the trapped equity, you're into territory where how the deal is papered actually matters legally and you'd want an attorney who does this.

There's no industry number for acceptable trapped equity. There's your number, and here's how I'd set it.

Work out how much cash you can put to work over the next three years. Say it's 120k. Then decide how many doors you want at the end of it. If you want four, you can afford to leave 30k per deal, and any deal that traps more than that has to earn its place with better cash flow or a better location. That's it. The percentage recovery everyone quotes is downstream of that arithmetic.

The second half of your question is more important. You decide before you buy by making the purchase price the variable. Your all in on that listing looks like 222k. If your rule is 30k stranded max and the honest ARV is 240k at 70% LTV, your loan is 168k, so your all in has to be 198k, so with 45k of rehab and 8k of closing and carry you can pay 145k. Not 165. You go make the 145 offer and most of the time it gets rejected, and that's the job. Distressed inventory is more available than it was, so you get more swings.

The deals that ruin people are the ones where they found the property first and then reverse engineered an ARV that made it work. Rehab overruns and a light appraisal are the two things that always happen, so put them in the sheet before you're emotionally attached to the house.

@cobalt the 145 offer being rejected most of the time is the part I underestimated. I've written eleven offers this year on the same logic and closed none of them. It's not discouraging exactly, it just means the pipeline you need is way bigger than the guides imply, and the search itself is a cost.

One thing on your practice numbers, @compass. Your 40k rehab guess is by your own admission amateur, and a bad rehab estimate wrecks every line below it. Before you trust your own sheet, walk two or three properties with a contractor who'll tell you what things cost. Cheapest education there is.