Explain Brrrr

[Leeroy Ayala]

Can someone explain the Brrrr process to me? Using example numbers

[Joseph Catalano]

I will use one of our recent purchases.  Our company purchased a 5 unit for 42k cash (Value is roughly 120k -125k).  We put 30k into improvements into the property.  We have 72k into the property.  We will now take out a loan on the property for 80% so roughly 96k.

Another property we recently purchases was at 150k we put 20% down so mortage was 120K (value is roughly 170k) so we immediately had roughly 50k in equity.  We are now fully rented, we incresed rents, cut a little overhead thereby increasing property value.  So in a two or three years we will have paid down more of the mortgage, increasing equity, and at that time we will refi, pull out the equity and do the same thing three years later.

[Bryan Potts]

Here's a good article written by @Brandon Turner explaining the process:

https://www.biggerpockets.com/renewsblog/2015/04/20/how-to-100000-dollars-year-real-estate/

[Joe Villeneuve]

The basic concept is to use cash to buy your first property, then refinance your cash back out...and use again on the next property and so on, until you can't get any more loans.  That is the problem with this system.

The solution is to have "credit" partners come in to do the refinancing.  This would allow you to have a continuous string of properties, all being purchased and rehabbed using the same cash repeatedly, limited only by the number of credit partners you can access. 

[Jeff Copeland]

Example: You use cash or hard money to buy a house for $60k. The ARV is $100k.

You spend $20k on the rehab to get it up to the ARV ($100k).

Now that it's worth $100k, you refinance out of the hard money (or pull your own cash back out) by getting a new mortgage at 80% LTV. So you pull $80k out.

Now you have none of your own money tied up in the house, and if you played your cards right, you have positive cash flow on the rental income and still have 20% equity in the house.

*The key here is finding financing. Refinancing a rental property is not as easy as a refi on an owner occupied home. And if you take title as a corporation or LLC, it can become more challenging. Just make sure you have the financing lined up in advance.

[Carrie Giordano]

Buy, Rehab, Rent, Refinance, Repeat

Buy a property for all cash, rehab the property, rent the property, 

Refinance- In my experience, most banks will give you 75% of the appraised value after 6 months of purchasing the property. If you are looking to cash out sooner you may be able to find a bank that will do a delayed financing however you will only get about 75% of what you actually paid for the property. I am sure these numbers differ in different areas and with different lenders.

Example- I bought a house for $42,500 and put $7,000 into it so I was all in at $49,500.

6 months later it appraised for $83,000 so the bank offered me $62,250. However, I like all of my rentals on 15 year loans and I liked the way the numbers worked on a $55,000 loan so that was all that I took. It is a personal preference.

Repeat!

[Alexis Davis]

this thread was very helpful.  Thanks all.

[Wendy Gomez]

awesome thread thanks to all who answered this was very useful to me, great question @Alexis Davis

[Ayodeji Kuponiyi]

@Leeroy Ayala BRRRR strategy—namely Buy, Rehab, Rent, Refinance, and Repeat. Hope this link helps explain it. 

[Phillip Lanier]

I never even heard of this strategy until joining bigger pockets!  Such an awesome concept.

[Jeff Copeland]

New podcast up on this very topic!

[Derek Vaughn]

@Carrie Giordano - Where in the heck did you find something for 42,500 in SoCal?? I am up in Bakersfield, and I haven't been able to find stuff that cheap. Good find!