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Updated about 8 years ago on . Most recent reply

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21
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5
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Karan Nanda
  • Investor
  • Dallas, TX
5
Votes |
21
Posts

BRRR Strategy

Karan Nanda
  • Investor
  • Dallas, TX
Posted

I was just reading a post by someone and he mentioned the BRRR strategy.

I like this approach but have a question on the refinance part of it.

I am still a beginner and the idea i have so far is to buy a rent ready property with 20% down and 80% mortgage from bank for 15 years (if numbers work out) else 20 or 30 years loan.

All the while i was thinking that keeping the loan for shorter duration will help as the once the property is paid in 15 years, cash flow will increase (no mortgage), and like wise you can plan to pay off all your properties 10, 20, 30 or whatever number. As you still have to pay 20% down it can't be near 100 i guess.

Some people advocate refinancing to take money out of the property. I want to understand this.

If you refinance a house which was initially having a 15 year mortgage and then take out your down payment and pay down the first loan, wouldn't you get into another loan for 30 years before the property becomes fully free. I am not able to clearly understand the benefit here.

My thought was to have as many free and clear properties as possible, so that if market were to go down , the properties don't go into foreclosures.

SO I am missing the benefit of refinance here, should we not try to pay off the debt as early as possible.

Please give your inputs.

Most Popular Reply

User Stats

560
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690
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Jeff Brower
  • Real Estate Agent
  • Willoughby, OH
690
Votes |
560
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Jeff Brower
  • Real Estate Agent
  • Willoughby, OH
Replied

The general consensus is to go for 30 years, not 15. Sure, you will save money over the life of the loan as you will pay less in interest. BUT... when you go 30 years you are hedging against inflation. If the tenants are paying the mortgage payment anyways you will actually benefit from getting a 30 year term loan.

Also if you get a 30 year loan you can technically pay as much extra on top as you want and can just pay it off in 15 if you so choose. But if you run into a money crunch you have the option of paying the lesser monthly payment that comes with a 30 year term. If you get a 15 year term loan you do not have this option; you are stuck paying the higher monthly payment.

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