Creative short term financing for long term buy and hold

[Sean Lindbloom]

I started BRRRing in 2020, and I am close to getting a 3rd BRRR rented. I pulled all the money out of the first two houses through refi. Things have been going well, and I have been exploring how to ramp up.

10 years from now, I'd love to have passive income from numerous rental properties. To ramp up BRRR or rental property purchases, though, I'd need more capital. I'm struggling with figuring out a good way to purchase long-term rentals through traditional financing or BRRR using outside money that allows me to pay that investor back in a few years vs. indefinitely holding their principal and being a long-term partner. Maybe a long-term partner is the only way. 

Has anyone had success with something like this? 

[Joe Villeneuve]

Quote from @Dana Powell:

@Joe Villeneuve, can you give an example of how one loses money by refi the equity out of one property and putting it into a new one?  Oh, is it because of the cost to refi? I took out a cash refi at 4% and used it for a 20% down payment on another  property at 4% that is cash flowing a little over $1000/month.  How would you rate what I did?  Thanks for any constructive criticism!

When you take out cash on a refi, you can move that cash forward to get another property and the added CF that comes with it.  However, when you do that, the CF from the property that is being refinanced goes down because the loan is higher than the previous one...that's how you get cash out.  Also, when you refi, you're still leaving anywhere between 25-35% of the property value in equity in the the refied property.  This is not the case when you sell.  If you sell when the appreciated equity equals the paid for (DP) equity, you get all of the equity out equal at least to 2x the DP on two new properties just like the original one.  This means your PV jumps dramatically, and your CF should double,...not have one go backwards.
Let's say you refied a property worth $200k with a loan balance of $120k...that leaves you with $80k in equity, which also means your equity is buying you a PV that's 1.5x the face value of the equity.  It should be 5x it.  Your CF will also go down with the bigger loan.  When you refi that property, you may only get out $150k (70% of PV).  After you pay off the existing loan, and subtract C.C., you're probably only getting around $30-35k out in actual cash.  That should get you a PV of $175k which will get you added CF that's less than what you're getting on the original loan on the refi property...but the refi on that property reduced that CF, so in the end your equity is buying a lot less PV, and a lot less CF, than if you sold the property and used the profit (net equity) to buy new properties.