Updated
Scenario assumptions
| Location | Englewood, Chicago, Illinois |
|---|---|
| Property type | Illustrative vacant Englewood brick two-flat |
| Loan type | Modeled hard money bridge → DSCR refinance |
| Loan amount | $204,300 modeled bridge (90% LTC on purchase plus rehab) |
The question behind this Englewood scenario
This is an educational example using assumed numbers, not a verified Jaken Finance Group closing. It models a vacant two-flat with a substantial renovation scope. The retained URL does not identify an actual Honore Street property or document an investor’s experience. Rates, value, rent, costs, and timing are inputs for analysis.
The scenario tests a common BRRRR assumption: buying at a low enough price will allow the refinance to return all the investor’s capital. Here, the refinance can exceed the bridge principal, but closing costs and eight months of carry leave meaningful cash in the project. The rental also illustrates why coverage above 1.0 does not necessarily produce positive operating cash flow.
For the actual lending process, see hard money loans in Englewood and DSCR loans in Chicago. Request a property-specific estimate before relying on any modeled leverage or rate.
Purchase and rehab financing
| Source or use | Assumed amount |
|---|---|
| Purchase price | $138,000 |
| Renovation budget | $89,000 |
| Total purchase and rehab cost | $227,000 |
| Bridge commitment: 90% × $227,000 | $204,300 |
| Rehab reserve within the commitment | $89,000 |
| Advance toward purchase | $115,300 |
| Investor acquisition equity | $22,700 |
The $89,000 rehab reserve is included in the total loan. It cannot be added a second time when describing leverage. This model excludes origination, closing costs, and carry from the LTC denominator. It assumes that the entire renovation budget is disbursed by refinance and that interest is paid separately from investor funds.
An illustrative 12-month bridge term gives the modeled eight-month project four months before contractual maturity. That margin can disappear if work, lease-up, or refinancing takes longer. Extension availability and charges must be confirmed in the actual agreement.
Price the building scope before relying on rent
| Renovation allowance | Amount |
|---|---|
| Rear porch and roof work | $28,000 |
| Professional fees, permits, and contingency | $14,200 |
| Electrical work and two kitchens/baths | $31,500 |
| Masonry repairs and tuckpointing | $15,300 |
| Total renovation budget | $89,000 |
These are assumed allowances, not contractor bids or known defects at a particular building. The model treats the contingency as fully spent. Before an offer, separate structural work, water intrusion, common systems, and unit finishes so that a low cosmetic estimate does not conceal the expensive parts of a two-flat renovation.
Review the City of Chicago building permit and inspection records for the actual address. The city cautions that recorded inspections and alleged violations do not necessarily describe current conditions. A current inspection, a contractor scope, and confirmation of required municipal approvals are separate tasks. This example assigns no fixed clearance timeline, universal occupancy requirement, or generic legal fee to every Englewood property.
How draws affect the cash requirement
The example assumes the lender reserves the full $89,000 renovation allowance and reimburses eligible completed work. A contractor deposit or payment that precedes reimbursement creates a temporary working-capital need even when the loan ultimately funds that cost. The investor should obtain the inspection fee schedule, release conditions, expected turnaround, and treatment of change orders before signing a construction contract.
Match each draw request to the agreed scope, invoices, and required supporting documents. Confirm who checks completion and what happens when an item exceeds budget. There is no invented contractor walk-off, inspection failure, or lender holdback in this scenario. The operational lesson is to identify those possibilities while capital and contractor choices are still flexible.
Eight months of cash uses
For a conservative comparison, interest is charged on the entire $204,300 commitment at an assumed annual 12.25% for all eight months: $204,300 × 12.25% × 8 ÷ 12 = $16,684.50. Disbursed-balance interest would require an actual draw schedule. The table assumes no rent offsets during construction and lease-up.
| Investor cash use | Assumed amount |
|---|---|
| Acquisition equity | $22,700.00 |
| Origination allowance: 2% of commitment | $4,086.00 |
| Purchase closing and draw-fee allowance | $4,500.00 |
| Eight months of bridge interest | $16,684.50 |
| Eight months of taxes: $350/month | $2,800.00 |
| Eight months of vacant-property insurance: $340/month | $2,720.00 |
| Eight months of utilities and security: $200/month | $1,600.00 |
| Total investor cash used before refinance | $55,090.50 |
The acquisition equity and initial fee subtotal is $31,286. That amount alone does not cover construction-period liquidity. Extra repairs, extension charges, and required lender reserves would be additional. The model assumes a separate stabilized insurance cost of $200 per month below; both insurance numbers need actual quotes.
Refinance proceeds reconciled to cash invested
Assume a $310,000 completed value and a refinance at 75% LTV. The resulting $232,500 is a modeled ceiling from value, subject to coverage and other underwriting conditions.
| Refinance use of proceeds | Amount |
|---|---|
| Modeled permanent loan | $232,500 |
| Repayment of fully drawn bridge principal | ($204,300) |
| Assumed refinance costs | ($5,500) |
| Cash remaining for the investor | $22,700 |
Returning $22,700 does not return all project capital. Subtracting it from the $55,090.50 spent before refinance leaves $32,390.50 unrecovered. This is a cash-investment reconciliation, not a calculation of taxable income, property basis, or profit. Additional payoff charges or reserves would reduce the cash returned.
At the assumed value, the property has $77,500 of equity after the refinance. That is the difference between value and debt; it is not cash available to fund the next acquisition. A further borrowing decision would require its own approval and repayment analysis.
Coverage and operating cash flow
At an illustrative 8.65% rate amortized over 30 years, monthly principal and interest on $232,500 are approximately $1,812.50. Add $350 of taxes and $200 of stabilized insurance, with no association dues assumed, and PITIA is $2,362.50. Gross rent of $2,700 produces approximately 1.14 rent-to-PITIA coverage.
This definition uses gross rent divided by principal, interest, taxes, insurance, and association dues; it does not subtract operating expenses from rent. Under a hypothetical 1.15 minimum, the same assumptions support roughly $230,618 of principal, slightly less than the 75% LTV amount. That target is a sensitivity test, not a statement of a current Jaken Finance Group requirement.
The $337.50 difference between gross rent and PITIA still has to support vacancy, maintenance, and management. Using a separate 15% of rent, or $405 per month, for those items leaves approximately negative $67.50 monthly cash flow. A borrower can have positive property equity and thin rental economics at the same time.
What an investor should verify next
Replace the $1,350-per-unit assumed rent with evidence for the subject property’s actual condition and unit configuration. Confirm the parcel and assessment information through CookViewer, then obtain the current tax bill, insurance quotes, and utility responsibilities. Neither a low purchase price nor a renovated comparison from another neighborhood proves the exit value.
Compare this scenario with the Bridgeport underwriting example: both require an explicit bridge payoff and a separate rental coverage test. Run a lower-rent case, a smaller refinance, and a delayed completion before committing to a purchase. Submit a scenario with the contract, scope, rent evidence, and intended exit, or start with the DSCR calculator.