BRRRR, Refinancing a Investor Deal

[Evan Smeenge]

I am trying to find other ways to invest in real estate without using my own money. I have heard that using hard money to start a BRRRR strategy and refinancing to pay off that hard money lender is a good way to do it.

I'm very confused on the refinance and repeat portion of the BRRRR strategy. I refinance to hopefully be able to pay off the lender, and then when does my profit come from?

If someone could break down the strategy when using either investors or hard money loans... And maybe three building types, a turn key, minimal fixes, full rehab.

Thanks!

[Bob Woelfel]

@Evan Smeenge your "profit" comes from the equity you have in the property when you refinance and pay your lender off.  It also comes from acquiring a cash flowing asset without using any of your own money providing you with an infinite return.  If you want "profit" as in a lump sum of cash in your pocket today then you need to just sell it once it's done.  

I'm sure you know much of this, but the reason the BRRR strategy is so popular is as follows. Let's say you had 20k to invest. You want to buy rentals, but your 20k will really only allow you to buy a 75k house. 15k would be your down payment and you would have another 2-3k in closing costs. So in order for you to buy another property you would have to save up another 20k.

With the BRRR strategy you could use your 20k and go get a private or hard money loan. Let's say you found a property for 50k and it needed 20k in work, but would be worth 100k when it's done. You could use your 20k for monthly interest payments and maybe even a portion of the rehab expenses if needed. Once your property is done and it appraises at 100k, you can then refinance out and pay off your lender the 70k. You now have a property with 20-30k in equity, it cash flows (hopefully) and you are back with the same 20k that you started with allowing you to do this multiple times. BRRR, when done right, allows the average investor an opportunity to grow exponentially.

To do this though in the manner I described you must find properties that need work and you can force appreciation.  I would not want to try this strategy on a turnkey property or even something that needs minimal work, unless you are getting a great deal where the numbers would allow it.  Best of luck.