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Updated over 5 years ago on . Most recent reply

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14
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6
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Mike Brown
6
Votes |
14
Posts

How does the "Refinance" part of the BRRR method work?

Mike Brown
Posted

I'm a bit confused about the refinancing part of the method. How does the process work? Say I start off with $35k capital for down payment and rehab costs. A home's value goes from $80k to an ARV of $140k. 75% of that would allow me to receive a $105k loan. Then I use the $105k to pay off the rest of the original loan + get back the $35k I had spent towards down payment/rehab costs, leaving me with $70k to repeat the process for another home (possibly 2 homes with that amount).

But how is that $105k supposed to be paid back, and wouldn't the monthly payment of that loan be higher than the original loan? I assume rehabbing the home would increase the monthly rent, and therefore cash flow, so perhaps that would make up for the higher monthly payment? Also, why do banks give 75% of the ARV loan even if the home isn't fully paid off?

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