BRRRR strategy real estate

[Samuel Chua]

I understand the first 2 Rs but i can't quite get refinancing. Could someone explain to me how it works and how I can get all my money back? Thanks!

[Michael Ealy]

Originally posted by @Samuel Chua:

I understand the first 2 Rs but i can't quite get refinancing. Could someone explain to me how it works and how I can get all my money back? Thanks!

Samuel,

You can't get all your money back if you buy the property at market value. It only works when there's a substantial discount.

For example, you need to buy a property at 70% of Market value less repairs. Let's say the market value is $100,000 and repairs is $20,000. So, the maximum you buy the property is for $50,000. You pay cash and invest a total of $70,000. You renovate and rent. After 6 months or 12 months (depending on the "seasoning" requirement of the lender), you can then go to a bank and borrow $75,000 on the property. After closing costs, you'll end up with $70,000 so you get all your money back.

Banks will lend 75% to 80% of the market value of a house. So you got to buy and renovate a property for less than 75% of the market value (or after repair value) of the property.

Market value is not the same as sales price though.

A house can be for sale for $50,000 because it needs a lot of repairs or it needs to be renovated but it's market value after it's repaired is $100,000.

Makes sense?