BRRRR Strategy Questions

[Caleb Dryden]

I heard a podcast recently talking about the BRRRR strategy. It seems like a great option but I have some lingering questions and hoping some of you who've had experience with this approach can help.

Example: I buy a fix'n flip (with private funds) for $85,000, put $20,000 into repairs, and the final appraised value is $150,000. I would then go to the bank and get it refinanced. At 70% that would allow me to cash out $105,000. The next step is where I'm uncertain of what to do with the cash. If I pay back the investor, then I essentially take on a $105,000 debt through the bank from the refi. Which doesn't get me anywhere b/c I could've just taken out a conventional loan from the beginning. If I throw the proceeds into another property, then I'm not cash flowing anything from the original purchase since the investor is being paid out a monthly interest rate (which is all the rent money). I feel like there is something missing that I haven't heard or discovered yet. f

Does the same scenario change at all if the purchase was made in my name using a HELOC?

Any tips? Much appreciated...

[Timothy Maloney]

@Caleb Dryden  First, you should be able to borrow 75% (or more) of the newly appraised value.    Be cautious as most banks will require seasoning and will not want to grant an unrestricted cash out.    However, the point of my reply is as follows:

You should be able to secure some aggressive Fix N Flip financing to do that flip with $21,000 (ish) out of pocket.    Assuming a 2 month flip given the low rehab budget the property *could be* stabilized at the start of month 3.    

Once you refinance at 75% of the 150,000 ARV you'd pay off the flip loan of $92,250 and net roughly 20k less closing costs. So, let's assume BOTH loans had combined closing costs of 10k (that'd be high) you are left with $10,000 of the original $21,000 you started with.

You would have essentially "purchased" a $150,000 property for $10,000 out of pocket or 6.6% down.  

The original $105,000 in your scenario above could conceivably get you into 1.5MM in properties.   It's risky, it's not cheap, but it is a strategy to get your portfolio huge rather quickly.   

Good Luck!!