I think I understand BRRR - someone gut check me.

[Gavin Davie]

So - here's a high level run down of how I understand this - and a few questions.

Premise - let's say I have about 20k to invest here.

Buy - simple, run the numbers, make sure they'll work - in the case of BRRR you want to find ideally the crappiest property in the nicest (or best/up and coming) area for the best price - hopefully without structural issues. Let's say for example - a neglected 14,000 town house that empty and boarded up falling/apart. So at the end of the day, I've got this property outright for about 20k (14 + closing)

Rehab - hard money loan for ~40k for argument. Let's say term is 6 months. And barring issues, let's say rehab is done in 5 months on budget. (yes, I know there are crazy factors here - bear with me for sake of example). Do you make payments on the hard money while rehabbing?

Rent - Now, I've got a nice property, worth about 65-70k now, I rent it out for $1,000/month. I owe a full amount of 40k+ to my lender in a month or two.

Re-finanace (here's where my questions come in) - so I engage a traditional mortgage company? - to refinance the house and put a traditional mortgage on it for the 40k+ ? How does this work - are the specific companies that will do this are these non-traditional mortgages? - regular lenders or do you need something more specialized? Do you need an addt'l down payment $$ here to secure the refinance? This is where things get murky for me, I find lots of info on the other 3 steps - this one seems vague.

Thanks in advance!

[Chris T.]

To refinance, you could use any lender (whether it is traditional banks, mortgage brokers or maybe your HML has another program that can refinance you from the fix/flip loan to a 30 yr mortgage)

ONCE your property is fixed up, and stabilized with a tenant, you've a lot more options. This is assuming your ARV is correct.

If your appraisal is lower than you expected; and/or your costs are higher; and depending on how much the lender will lend you (whether it is 70-85% LTV), you may need to bring money to the table.

The key is the appraised value when your property is fixed up.