Brandon Turner Book Refinancing Doubt

[Allan A Ramirez]

I have a question for anybody willing to help me relating to Brandon Turner’s book ( How to invest in Real Estate with No and Low money down). Rich gets a short term $75,000 loan from his friend to purchase a property and another $25,000 for repairs. They negotiated terms for 11 percent interest and 2 points. Two months later the property appraises for $155,000. Rich refinances and pays his friend his principal, interest, and points. On top of that Rich pockets $5,000. Rich keeps this property as a rental making a monthly cash flow of $400. Here are my questions: 

Did the home appreciate to $155,000, or original value plus $155,000? 

How does the refinance affect the deal? (This is what I believe) He took out a new loan paying back the principal, interest, and points, this new loan was greater because of the new appraisal of the property, after paying back his friend he also ended with $5,000 he can either put back towards the new mortgage or use for whatever he needs? Is this right? Now Rich has a rental property profiting $400 in cash flow he is using to pay off that mortgage. Correct? Thank you so much to anybody who can stop by and answer this! 🙏🏼

[Luke Trovinger]

Hey @Allan A Ramirez! If the property appraised for $155,000, that would be the full value of the property. So it would have appreciated to $155k.

The refinance would pay off the original loan, and leave this new loan in place. In this scenario, it sounds like the LTV was high enough to not only pay off the original loan, but also allow for "cashing out" of $5,000. You are correct that the cash back would allow him to pocket the money or put towards the mortgage if desired.

Hope that helps!