Curious about the 3rd R in the BRRRR strategy. Theory vs Reality

[Eric Veronica]

I am a bit curious about investor's real world experiences in the refinance portion of the buy, renovate, rent, refinance, repeat process. In theory this is a great model. Buy a slightly distressed property for $100,000 with $20,000 down. Spend $10,000 in updates. Painting, minor repair, new carpeting, updating lighting fixtures, etc. Wait 6 months and then do a 75% LTV cash out refinance based on an assumed value of $150,000. This gives you a loan amount of $112,500 which leaves you with $30,000 in your pocket (assuming $2,500 closing costs). You have completely reimbursed your $20,000 in initial down payment and $10,000 in renovations and now leaves you with money for next down payment and renovations..... Yay!!!!

The success of this process is based on a very big assumption that your "great deal" and your $10,000 in renovations is going to equal a $50,000 increase in value.  Expecting an appraiser to increase value by 50% from a sale 6 months prior is a pretty big ask.  Sure this was not as difficult 5-6 years ago when you could buy foreclosures at a heck of a discount but that market doesn't really exist today.  Also I am sure this was not as difficult in the last couple years when values nationwide have risen at a pretty rapid pace.  Now we are in a market where values seem to be stagnating in most markets.  

Interested in hearing investors who have been burned by a low appraisal and also those who have successfully used this method  to turn a relatively small amount of money into a large number of investment properties.