"Refinancing" Part of BRRRR

[Zach Shahan]

Hello,

Still trying to wrap my head around the refinancing part of BRRRR. I'm reading the book currently and taking notes as a go, but have already developed a few questions:

1) Ex: I find a private money lender to buy property (say $100k), I invest an additional $20k into rehab, ARV is $200k. When we go to "refinance" we are given 80% of ARV ($160k), then do we have a loan/mortgage on the remaining $40K? Would our loan/mortgage payment be pretty low assuming the loan amount is now only $40k?

1a) Assuming we are given the 80% of ARV, once we pay back private lender, we are free to invest the remaining amount on another property and repeat the process (hence BRRRR)?

I have been familiar with this process for a few years, but just now pulling the trigger and diving in. In the past, I was under the impression you needed to put 20-25% down on investment properties. At that rate I could only average 1 per year (I currently own one door). The subject of private lenders is relatively new to me, but I can already see the great benefit it provides and how it can open up many doors (yes, real estate pun intended)!

Thanks in advance on any feedback,

Zach (Structural Engineer In-Training in Indiana)    

[Tesho Akindele]

Hi @Zach Shahan I think I may be able to provide some clarity for you.

In your example, you buy a house for $100k and put an extra $20k into the deal. I'm assuming the $100k was a loan from a private lender, and the $20k was money out of your pocket. 

If the house then appraises for $200k (ARV = $200k) you can get a loan for 80% of the ARV. (Loan = $160k)

That $160k loan has to be used first to pay back the $100k that you owe to the private money lender. Then you can take the next $20k and pay yourself back. You are left with $40k cash, free and clear. 

I hope that helped explain it a bit.

That would be an absolute home run deal if you can find it!