BRRRR: When your cash out is too much.

[Philip Calixto]

Hello BP!! My name's Phil I'm new. Thanks in advance for checking out my post. 

So yes, I'm reading about BRRRR and had a question during refi stage.

I understand that the main idea is putting in money into an investment, then taking it back out to go invest in another property. This happens after rehab and you were all-in at 75% ARV. Then you get a refi and the bank gives you back your 75%. What happens if you go all-in at less than 75%? This is because you buy very low compared to the market. I'm sure this can happen because it says it does in the book. And it's great.

However, you want to take out all that extra cash, but now the monthly payment on your cash out refi is too big for your rental income to cover. Let me break it down.

  Recently sold home that I saw on Zillow:

sold at $46,000

+rehab $24,000 (I made this up)

All in at $70,000

ARV: $340,000 (this is the Zestimate)

all in at 21%

Refi for 75% = $255,000 (daaaaannnnngg)

but now your payment on that refi is $1600/mo. but rentometer says the area rents for $1500 and you confirm it.

What do the real investors do? Do they just take back their $70K and leave the rest in equity or do they say "oh well this is no good. I'm just going to look somewhere else?"

I know I made up some numbers, but hopefully you get my question. And I know I could've searched harder for this answer on the forums, but I really wanted to say hi. 

Anyways, thanks for checking out my post.

Peace. 

[Jay Hinrichs]

something is not right.. houses that have 350k arv do not sell for 40k and only need 25k in rehab.. 

your example is not realistic in the least bit.

can this happen yes once in a career maybe and or if someone was giving you the property.. but in the free market no way.