Blog
Chicago Two-Flat BRRRR: Cash Left After Refinance
By Jason Taken · Principal
12 minute read
Calculate cash left in a Chicago two-flat BRRRR after rehab, loan payoff, and refinance costs. Test rent, taxes, appraisal value, and your next purchase.
Cash left in a Chicago two-flat BRRRR equals your cash spent through refinance minus the cash the new loan returns. If the new loan cannot pay off the rehab debt and closing costs, add that shortfall. A higher property value can create equity while leaving much of your original cash tied up.
BRRRR means buy, rehab, rent, refinance, and repeat. The last step works only when the new loan releases enough usable cash and the rental can support its ongoing costs. Before you offer on a two-flat, solve for both outcomes. A lender’s maximum loan percentage answers neither question by itself.
This guide follows a made-up Chicago rental from purchase through rehab and a new loan. The owner does not live there. The figures show how to test a deal; they are not a funded loan, appraisal, rent forecast, or quote. For legal unit count and property choice, use the Chicago two-flat and three-flat guide.
How do you work out cash left in the deal?
Use two linked calculations. First, find the cash delivered by the new loan: new loan proceeds minus the old loan payoff, closing costs, and any needed cash payouts. Then compare that result with your own cash spent on the project. Keep borrowed money separate from owner cash paid in throughout.
When the new loan result is positive, it returns some cash to the investor. When it is negative, the investor must bring more money to close. A negative result is not cured by calling the loan a cash-out refinance. The allowed loan type and the real settlement statement determine what happens.
Cash left in the deal also differs from property equity. Equity is value less debt. Your unrecovered cash is a historical funding measure. Neither figure is guaranteed money you can use for the next purchase. Selling the building or borrowing again would involve another decision, extra costs, and fresh approval.
Track reserves in a separate column. Money you must retain in your own bank account remains yours, but it is not free purchase cash. Money actually withheld into an escrow reduces the closing payout. Mixing these two reserve types can make the same dollars appear available twice.
Build the purchase and rehab budget first
Price the work inside each unit and the work that serves both. A Chicago two-flat may need brick repairs, a rear porch, a roof, heat, water lines, or new electric panels. Get that work into the signed scope. A room-by-room paint and flooring budget can miss large costs elsewhere in the building.
Get bids before assigning a loan amount. List work that needs a deposit, work paid after inspection, and work that must be finished before a tenant can move in. Then map those payments against the lender’s draw process. An approved rehab allocation is not the same as cash available on the first day.
Jaken Finance Group’s fix-and-flip financing lists Up to 100% LTC on qualified files up to $2.5M; larger files quoted individually, subject to Up to 75% ARV. The lower relevant limit and the file’s approval control. Published loan rates are 8.99%–13.5%, with a typical 6–12 months term. Fees, reserves, draw terms, and eligibility still need review.
Do not treat a maximum advertised cost percentage as a promise to cover every bill. Ask whether interest, points, purchase closing costs, permit fees, and contingency are eligible costs. A high loan-to-cost ratio can coexist with a large cash need if those items sit outside the funded budget.
A hypothetical eight-month Chicago project
Assume a purchase price of $280,000 and a $70,000 rehab budget. Total purchase and rehab cost is $350,000. For this example only, the approved rehab commitment is $315,000, or 90% of those costs. Assume the loan also meets its separate value limit and that every rehab dollar is drawn.
The model uses eight months of interest at 10.5%, charged on the full commitment throughout. That is a conservative assumption, not a statement about every draw-based loan. Real interest may depend on outstanding principal, minimum interest, or other note terms. Use the actual loan documents when replacing this exercise with a live deal.
| Investor cash use through month eight | Sample amount |
|---|---|
| Purchase and rehab equity | $35,000 |
| Origination fee, assumed 2% of $315,000 | $6,300 |
| Purchase closing and draw-cost allowance | $5,000 |
| Eight months of bridge interest | $22,050 |
| Taxes, insurance, utilities, and upkeep during the hold | $7,200 |
| Total investor cash spent before refinance | $75,550 |
No rent is credited during this eight-month period. That input makes the cash schedule easy to audit. If you expect earlier rent, add the real collections and the costs needed to earn them. Do not subtract a full year’s projected rent from a project that will be vacant for much of the year.
The $75,550 is spent cash, not a full liquidity requirement. An extra unspent reserve, a contractor deposit awaiting reimbursement, or an overrun could increase the bank balance needed to carry out the plan. Ask whether the same cash reserves must remain after closing. Keep that requirement visible before agreeing to another purchase.
Size the rental refinance from value and rent
Assume the completed building appraises at $450,000. A sample 75% refinance limit permits $337,500 based on value. This exercise uses 75% as an example. It does not mean every Jaken Finance Group refinance receives that percentage. The DSCR rental program applies different limits by transaction type, market, and borrower qualifications.
Next test the payment. At an assumed 7.5% fixed rate over 30 years, principal and interest on $337,500 are about $2,359.85 per month. Add $800 for monthly property taxes and insurance. With no association dues, the modeled total housing payment is $3,159.85. Real insurance and tax estimates must replace that allowance.
Suppose the lender accepts $4,000 in total monthly rent. Rent divided by that payment produces a debt service coverage ratio, or DSCR, of about 1.27. Against an assumed 1.20 minimum, this example passes the rent test. The assumed minimum is an example input. It is not a universal product requirement.
This is residential DSCR math for a two-unit property. A commercial apartment loan generally starts with net operating income and yearly debt payments. If your purchase has five or more units, use the Chicago apartment refinance guide to follow that different analysis.
Explore the worked example
Test the two-flat refinance
Change rent, value and tax costs to see how much project cash the refinance returns.
Illustrative results for the starting values. All editable loan terms are assumptions.
- Modeled loan ceiling
- $337,500
- Net proceeds after payoff and costs
- $15,000
- Cash still invested / cash needed
- $60,550
- Monthly cash flow after extra operating allowance
- -$80
| Value-based limit | $337,500 |
|---|---|
| Rent-based limit | $362,311 |
| Monthly principal, interest, taxes, insurance and HOA | $3,160 |
| Rent ÷ total housing payment | 1.27× |
- Negative net proceeds mean cash is needed at closing. Negative cash still invested means modeled proceeds exceed the cash-spent input.
- For an acquisition, enter the purchase price as the payoff input, enter closing costs, and set cash already spent to zero. Use the lower lender-accepted purchase/value basis.
- The operating allowance covers vacancy, management, repairs and future capital work beyond taxes, insurance and HOA. It affects owner cash flow, not this residential rent-to-payment test.
- Seasoning, transaction classification, condition, credit, reserves and program approval can reduce proceeds. This calculator does not test those requirements.
What does the new loan actually return?
The new loan amount is not the cash the owner receives. The rehab lender gets paid first, followed by other needed closing payouts. For this example, assume interest has been paid monthly, no prepayment charge applies, and total refinance costs are $7,500. A real payoff must include all amounts due through the real closing date.
| Refinance cash math | Amount |
|---|---|
| New rental loan | $337,500 |
| Fully drawn rehab principal payoff | ($315,000) |
| Assumed refinance closing costs | ($7,500) |
| Cash returned to investor | $15,000 |
| Investor cash spent before refinance | $75,550 |
| Cash still unrecovered after refinance | $60,550 |
The building has $112,500 of modeled equity after refinance: $450,000 less $337,500. Yet only $15,000 returns to the owner at closing. That distinction is central to the repeat step. A plan that needs $50,000 for the next purchase cannot rely on this new loan alone to supply it.
Receiving $15,000 also is not a $15,000 profit. It is borrowed cash from the new mortgage. The owner still holds the building and owes the replacement debt. Keep operating profit, equity growth, and cash released by financing in separate rows when comparing results across projects.
Stress lower rent and a lower appraisal separately
A lower appraisal and weaker rent affect different limits. Test each one on its own before combining them. If value falls 10% to $405,000, a 75% value limit permits only $303,750. With the same $315,000 payoff and $7,500 closing allowance, the owner needs $18,750 to complete the new loan.
That increases unrecovered owner cash to $94,300. It also changes the next-purchase plan before any new repairs or leasing delays are considered. Ask where that extra cash would come from. A vague plan to borrow against another rental is not a confirmed funding source until that property and product are reviewed.
Now restore the $450,000 appraisal but reduce rent the lender accepts to $3,400. At the same assumed 1.20 coverage rule, the total payment can be no more than $2,833.33. After $800 of taxes and insurance, only $2,033.33 remains for principal and interest. At the modeled rate and term, that supports roughly $290,803.
The rent-constrained refinance would need about $31,697 at closing, leaving about $107,247 of owner cash unrecovered. A bigger appraisal would not fix this payment limit. Lower debt, better-supported rent, lower verified costs, or different approved terms would be needed. Each change must be supported rather than assumed.
Does the finished rental produce enough owner cash flow?
Passing a DSCR screen does not settle the operating decision. In the base example, rent of $4,000 exceeds the modeled housing payment by about $840.15. The owner still has vacancy, repairs, management, and future capital work to fund. Those costs may not appear in a residential rent-to-payment screen.
Assume monthly allowances of $200 for vacancy, $320 for management, $200 for repairs, and $200 for capital replacements. Together they consume $920. The resulting cash flow is about negative $79.85 per month before income taxes. This property passes the assumed loan test while missing a positive owner cash-flow target.
Those allowances are planning inputs, not Chicago market averages. Replace them with a property-specific management quote, inspection findings, and a maintenance plan. Self-managing may avoid a current invoice, but your time still has value. Removing all repair reserves makes the spreadsheet look stronger without making the roof last longer.
A smaller refinance can improve monthly cash flow while returning less capital. That tradeoff may be sensible for a long hold. Test it with the DSCR calculator. Then decide how much cash you are willing to leave invested. The loan amount should serve your plan to run the building and cash needs together.
Verify Chicago records before counting the rent
Start with the City’s building permit and inspection records. They help list permits and recorded inspections, but a clean search does not prove that every unit is lawful or every job was finished. Match records with plans, a building inspection, and the real layout before underwriting an extra dwelling.
An attractive basement can be storage or accessory space rather than another rentable apartment. Do not let a listing’s bedroom count decide the financed unit count. Ask the right city staff and your property professionals what use is allowed. Base the first math on confirmed apartments. Then treat any conversion as a separate project.
Review the tax bill and exemptions as well. The Cook County Assessor’s Homeowner Exemption guidance ties eligibility to principal-residence occupancy. An investor should not assume a seller’s owner-occupant exemption will continue on a fully rented property. Get a supported tax estimate rather than copying the seller’s net payment forever.
Older buildings also need a work-scope review for lead-related rules. The EPA renovation, repair, and painting program addresses qualifying work in pre-1978 housing. Ask the contractor how applicable rules affect methods, pricing, and records. A financing budget should reflect the real work needed to complete a safe, lawful rental.
Plan draws, leases, and the new loan calendar together
Create one calendar with permit milestones, contractor payments, inspections, unit completion, tenant move-in, and refinance review. Each event has a cash effect. A finished kitchen does not produce rent until the unit is ready, a qualified tenant takes possession, and money is collected. A lease start date is not always a bank deposit date.
If one apartment is occupied during work, review its lease and lawful access arrangements before setting the schedule. Do not assume you can remove the tenant to simplify construction. Keep unit-level rent collections separate from common expenses so you can see whether an occupied unit actually reduces the project’s cash burn.
Ask the planned refinance lender what evidence is needed at closing. Rules can include repairs that are done, a valuation, accepted leases or market rents, insurance, entity records, and ownership seasoning. Some no-seasoning refinance options may fit selected files. That possibility does not promise a cash-out type or an exact value basis.
Leave time for a second round of questions before the bridge matures. An extension may need fees, extra interest, and lender consent. It should be a priced backup, not the base plan. Keep your payoff estimate current as the closing date moves, since an old payoff can understate the final cash needed.
Choose finishes for the rental business you intend to run
A rehab budget should serve the likely rent and the cost of keeping the units in service. Compare finish choices by purchase cost, expected repair needs, replacement lead time, and ease of cleaning. A custom item that helps a retail sale may offer little extra rent and cost more to replace between tenants.
Keep the scope consistent with the rental evidence supplied to the lender. If similar apartments include central air, separate laundry, or parking, explain whether the finished property will provide those features. If it will not, adjust the rent case instead of assuming the same price for a different offering.
Track changes against both the cost budget and the expected benefit. An extra $8,000 of work needs a purpose, whether it resolves a condition issue, protects the building, or supports rent the lender accepts. It does not by itself add $8,000 to appraised value or refinance proceeds. Ask for the revised cash math before approving a large scope change.
Finally, keep a record of paid invoices, permits, and completed work by unit. Those records help explain the project to a new lender and to a future property manager. They also prevent a later repair from being confused with work the contractor already agreed to complete.
Decide whether the project is ready to repeat
Set three written limits before making the purchase offer: maximum cash you will leave invested, minimum monthly owner cash flow, and minimum cash you will retain outside the building. These are different goals. A project can meet one while failing another, as the worked example shows.
Then list a response for each failed test. A lower purchase price may improve all three measures. A smaller rehab scope may reduce cost but also reduce rent the lender accepts or value. More debt may release cash while weakening monthly coverage. Assess the linked effects instead of changing one cell solely to make the result turn positive.
Keep tax accounting separate from this cash model. The IRS rental property guide explains rental income, expenses, and depreciation. Your cash reconciliation is not a tax calculation or a forecast of after-tax proceeds. Give your tax adviser the same invoices and settlement records used to build the funding schedule.
To review a Chicago two-flat, send the contract, unit layout, rehab bids, rent support, tax and insurance estimates, and available cash. Start a purchase review through the rehab loan request, or submit a completed property’s rental refinance scenario. Ask for both the expected loan amount and the cash needed at each closing.