Brrrr - Refinancing ?!

[Sivan Aviv]

Hi All ,

The brrrr strategy was not easy for me to catch in the beginning because of the refinancing principle that i was not familiar with before.

Now when i get it , it is simply magical :-). I would like to present some example and i would be happy if can share you opinion for the 

questions related to it.

Example :

Apartment price : 100K

Loan : 70K (446 USD Monthly Return)

Cash money : 30K

Renovation costs : 15k

Closing costs :10K

Total Cash : 55K

Rent Income : 1000$

Cash Flow : 554 before taxes (Rent - Loan return) 

ARV (apprised) : 150K

Refinance : 70% -- > 105K

Cash Flow after refinancing : 100$

Profit : 105k – 55k = 50k

Ok , i ended up with apartment with a value of 150K that i don't have any cash in and this apartment is building equity in it.

my point is that i need the cash flow. according to your opinion should i take the 50k (the "profit") as cash to live from or i should keep it for darker days ? i'm not sure what is the right approach with the money that you are getting from the bank ....maybe better not to refinance it fully but only with the amount that i'm (in cash) in order to cover my initial expanses and then i will have a lower monthly return....what do you think ?

Thanks!

[Jon Reed]

You have some big issues with your math and your statement of 'having no cash in' is not accurate. 

You are purchasing a 100K property with 30K down.. So.. you currently have a 70K mortgage on the property.

You put in 15K to renovate and had 10K in closings and now you have a 150K property. 

So now you refi it at 70% of 150K... which gives you a $105K

Now you still have to pay off that original loan so 105K - 70K = 35k extra

So you have 55k cash in the property and refi out to only get 35K out... you are actually behind 20K (not up 50K).

[Sivan Aviv]

Thanks a lot @Jon Reed !