Question about the BRRRR strategy

[James Eaton]

Good morning, everyone. I am in the middle of David Greene's BRRRR book and I can't quite get my head wrapped around the strategy. How is it possible to buy a home then refinance and pull out 75% of the value as cash? Wouldn't you technically have a double mortgage on the property? Totally confused...

[Annchen Knodt]

Most BRRRR deals are purchased up front with either cash or short-term financing such as private money (e.g. a rich uncle lends you the purchase + rehab amount at 8% interest for a year) or hard money (more institutional lender that will lend based on the property / "hard" asset for 6mo to a year, usually charging 10-12% interest and some points up front). Once the property is rehabbed, you do a cash-out refinance to long term financing (e.g. conventional 30 year), and pay off your short term lender. Hope this helps!