Can BRRRR ruin your cash flow?

[Mathew Hilton]

So for the BRRRR method, when you do the cash out refi and pull all of your cash out (making a new loan to pay off the first), can't this ruin your cashflow?

Quick example numbers:

Purchase price= $70k, Rehab=$35k

ARV=$150k, cash out refi 70% LTV= 105k (100% money out)

First loan 20% down (14k) at 4% interest= $334/month mortgage

Second loan at 4% interest= $716/month mortgage

Am I missing something? I understand that you should expect to increase the rent after it's newly rehabbed, but do you essentially need to calculate not just the ARV beforehand but also the target after repair rent that you should be renting for to ensure that you can cash flow after the BRRRR?

[Steve Vaughan]

The two goals of BRRR are equity capture and minimum capital remaining in the asset. Not cash-flow.

If you want cash-flow, do like I do and buy and rehab with cash and forget the refi.  My 'cash-flow' is just me getting my money back for years but I am aware of that and can always refi if I feel the urge.

In your example, you will be sitting with $45k in equity with no money invested.  Not bad in my book.  Are you that hung up on chasing $200 a month? Equity creation/capture builds wealth, not small ball cash-flow.  

Look into maybe offering a lease option vs standard rental. TBs will pay a little more monthly plus 3% or so in option consideration, but you risk losing the asset within a couple years.  Mostly I wanted to point out the $45k in equity will change your trajectory more than a couple or few hundred a month.