BRRRR question and clarification

[Craig Anderson]

Ok, so I'm really liking the BRRRR strategy. I've been listening to podcasts and reading daily on the subject. However, as a wanna be investor, who was little money to invest, I'm struggling with the refi concept. Here's my issue about how to repeat after the refi:

Example: If I found a house for $90K that includes purchase price, expenses and rehab ($30K). I borrow from a hard money lender $60K, and borrow $30K from a partner. Then, the ARV comes to $120K, I refi and get 75%, which means that I get back $90K, let's say in 6 months. However, I have to payback the hard money lender $60K plus 10% for $66K, and my partner $33K. Didn't I just lose $9K? Even though I'm getting cash flow from the property. And, how do I recycle money that I never had?

I'm guessing that I have to make sure that I add in expenses for paying back my lenders when I do my analysis. Plus, I would like to get a little kick back in addition to cash flow from these deals. So, my ARV has to be more around $140K, right? This would give me around $3000-$4000 after paying everyone back with interest and new closing costs on a refi. Does the BP calculator account for this?

Any clarification would be helpful.

Thanks!

[David M.]

@Craig Anderson

Yes, the generic examples don't account for operating costs/expenses.  In your example, you are completely doing it with none of your own money so its tough to see how recycle funds.

The more "classic" brrr example is to purchase in cash. This saves you the cost of a loan. The "rule of thumb" for a 70% ARV lets you get all your capital back on the refi. Now, you have your starting cash AND a rented property. Isn't that nifty?

So, back to your case, other than operating costs (and don't forget closing costs, etc.), you are back to where you started PLUS you also have a rental.

I hope this helps.  Good luck.