Brrrr Refinance?

[Aaron Millis]

Hi everyone, I am new to bigger pockets and recently learned about the brrrr method. I understand everything about it except the refinance part. I actually just don't think I know exactly how refinancing works... So if I got a loan for a house that cost me $50,000 and then put in $20,000 for rehab that's $70,000 I spent right there. Let's say the house ARV is $100,000... After fixing up the house I can go refinance it for probably a better rate since its in good living condition I understand that. I don't understand how it puts money in your hand. Especially since I've heard you can get it refinanced for up to 70% of ARV. What about the other 30%? How is the only money coming out of pocket the possible closing costs that would follow? Again sorry I'm new to this so its probably an easy concept I don't understand yet, any help would be appreciated!

[Alex Saleeby]

Hello Aaron Millis in the example you gave, the 30% is equity the you have earned yourself from having completed that brrrr.
To answer your question about "money in your pocket", suppose you found a lender to give you a loan at 75 or 80% LTV, then the extra 5 or 10% could be cash you pull out of the deal. This doesn't necessarily mean that you should. A lower loan amount should translate to higher cash flow from your rental, so more money you get to keep each month.
Also, keeping the 70% used in your example, suppose you did a better job negotiating the purchase price and got the property for $35k, put another $20k in rehab. That's a total of $55k all in. With an ARV of $100k & 70% LTV, you could pull out $15k cash out of the deal. Again, it's up to you to decide if you want to pull this cash out or keep it as equity in the deal. More equity translated to higher net worth. Run your numbers and decide what's best for your situation.
Hope the helps and good luck.