BRRRR Strategy Help - Focusing on the Refinancing Aspect

[Dylan Bednarz]

Hello everyone,

I am new to BiggerPockets and relatively new to real estate investing in itself (I have been doing a lot of research within the past 4-6 months), but this BRRRR strategy has made its way to the top of my list of ideas to begin my real estate investing. However, I am having a hard time fully grasping the concept. Let me give you some background:

I am looking to purchase my first house, as well as, start a real estate investing journey. I graduated college in May of 2017 and now I work a full time 9-5 (well 7-3:30) job, that I am very happy with, but I have always had an interest and passion in the real estate world and would love to start part-time investing to make some extra cash and increase my yearly salary (as you can imagine I do not have "a lot" of money saved up at this moment). My true interest lies in house flipping, so my initial idea was to get an FHA loan, buy a house in distress, rehab it, then live in it. This would primarily be a test run on how I did as if this was an investment house that I would be flipping. I would treat it exactly as if it were only an investment property, I'd analyze the numbers and see (if I wanted to sell it) how much profit, if any, I would've made. Then I would take the system I used for this house and apply it on another house but using a hard-money loan instead of an FHA (this is with the great assumption that there is no way a bank would give me another loan right after my FHA loan), purchase another house in distress, rehab it, and hopefully flip it for a profit. Upon researching hard-money loans, it appears that the interest on the loan would completely obliterate my profit margin, so I decided to start brainstorming other ideas which is where this BRRRR strategy came into place. I am very very VERY hesitant to renting simply because of the idea of managing tenants, but if the deal and strategy really is that great, then I may have to change my mind.

My idea now is to purchase a two-family/multi-family house in distress (with an FHA loan, unless another more beneficial option is available - which I would love to hear from the readers about), rehab both units, rent one unit and live in another, then "refinance" the property. My misunderstanding is the refinancing aspect, hence it is in quotations. If I refinance my FHA loan, does that mean I am now taking a second loan out or am I replacing the FHA loan? I honestly do not even have any tangible questions to ask in regards to the refinancing aspect because I truly do not understand how this can build growth and help me move forward with investing.

I have read many forum posts, and many articles, in regards to the BRRRR strategy, but none of which go into deep detail with tangible examples. They especially do not go into thorough detail on the refinancing aspect. So, if someone can please first go into deep detail on the BRRRR strategy, and then primarily focus on the refinancing aspect, I would sincerely appreciate it. I would also greatly appreciate the use of an example with some numbers as well.

My apologies for the lengthy post, but I thank you very much in advance for your time, patience, and help.