Please explain BRRRR

[Justin Johnson]

I understand the acronym, all except the details of refinancing. How do you "pull out" your invested money by refinancing? Or is this R referring to taking out a HELOC? Please explain at "dummy" level with detailed and step by step examples. Thanks, Newbie

[Jared Bouzek]

@Justin Johnson There are a number of ways that BRRR can be done with financing/cash but I'll give you a crude example:

You find a single family home that you purchase for $100,000 in cash that needs to be rehabbed. You spend $20,000 on rehab and holding costs (insurance & taxes), and when you're done, the house is worth $150,000. You rent the property out, and after you have owned the property for six months (Conventional guideline) you take a mortgage against the property for $112,500 (75% LTV). So you initially invested $120,000 but got $112,500 back as a loan after you refinanced leaving $7,500 of the initial investment plus you spent some money on closing costs to refinance. The result is you control a $150,000 rental property for around $10,000 or so invested. You can accomplish the final refinance with a 30-year fixed Conventional mortgage if you're willing to wait the six months.

As I said, this is a crude example that can be handled a number of different ways with financing up front or better investment margins but it gives you the idea.