BRRR Strategy Question

[Phil Rizzo]

I am new to the BRRR approach, but I am very interested in implementing it. I found a bank that would refinance the property after the rehab, but they told me if I were to refinance with them, I would need to put 20% down. This threw me for a loop because I was under the impression I could refi cash out and pay back the short term loan. So if I am all in on a rehab for 100k, ARV is 150k I thought I could refi for 105,000 give or take. But if I still need to put 20% down at the time of the refi it defeats the purpose of BRRR. What am I missing? Is the rep at the bank miss guided? Im looking for some clarification and guidance from the group. Thanks!

[Steve K.]

@Phil Rizzo

Unless your banker has a different requirement from those used by BRRRR investors, I think you're ok.

If you can find and rehab a property for $100k that will appraise for $150k, you'll have a "home run" of a BRRRR. That's hard to find.

BRRRR is to access all or part of that $50k gain, then "repeat".

Once it appraises for $150k, the banks will loan you 75% or 80% of value (LTV).....so, your banker is telling you they'll loan up to $120k loan (80%LTV). You will have 30% equity or down payment minimum in the property. In the BRRRR method, this is ideally part of the "gain" you've made....but it is "equity" to satisfy the bank, nonetheless. You shouldn't be asked to put in another/new $30,000 too.