BRRRR Strategy

[Shanel Wiggins]

I watched the webinar in the Brrrr strategy last month and I didn't quite grasp the concept of this strategy. I guess mainly the refinance part. Can someone explain in great detail?

And I've seen someone posted about using hard money for the Brrrr strategy. Knowing the short terms of hard money loans (usually no longer than 12 months), is using hard money a good idea for this strategy?

[Joe Villeneuve]

Here we go Shanel.  Are you sitting down?

First, the reason for doing this is the ability to use the same funds over and over again.  In the end, this means you are not actually "spending " you money...you are "using" your money, as many times as you want/can.

Second, the success of this strategy as @Brent Coombs has touched on, is very much Market based (as in dependant on the RE Market you are investing in) since it involves getting properties at a discount.

Third, it works best when you are using all cash, or a cash-like substance. Using HML really isn't doing this method. It looks very similar to it, but since you are not using your own cash, using HML is just using HML's over and over again...which isn't anything special.

Fourth, and this is a big one (they're actually all big), after the refi is in place, the property MUST have positive cash flow of at least $???/month.  This is where you replace the "???" with whatever your required CF/month is.  Mine is $450/month (with no cash left in the deal, and a PM in place).

Here are the steps with explanations:

1 - Get cash together.
2 - Find a RE Market that will allow you to use your cash ONLY for all costs (buy/rehab/etc...)
3 - Find a lender that will do REFI loans on Rentals...and what their terms are. The usual terms would be 75% of the ARV (after repair value).
4 - Find a property, in the Market you found, that will allow your to - 
     a) Buy/rehab cost at less than the terms of your lender for refi (75% or less using the lender above) & where that total cost is not more than the available funds you have on hand.
     b) Buy/rehab the property
5 - After the "seasoning period" required by your lender, get the property refinanced.
6 - Take the cash from the refinance (this is why you use cash to start with...and not a loan) and repeat Steps #4 - 6...as many times as you want/can.

Note:  After a certain point, or even in the beginning, you may need to involve cash partners to get the needed cash together, or a credit partner if you can't get approval for the refi's.

Clear as Mud?