BRRRR YouTube video by bigger pockets- Question

[Jesus Farias]

This video on youtube was super detailed and entertaining. I listened to it on the way to my 40-minute commute to work. This had a lot of good information and definitely wanting to do this in the future once I find a partner or get my money up to be able to do something like this. One thing I had a question on was the loan amount after getting an appraisal and being approved. Ok, so you get the appraisal amount now that you were able to successfully rehab and the house is worth more. The bank appraises it and helps you out with a $90,000 loan(example) and then you can repeat the process to do it all over. Are you making payments right away on this $90,000 loan or how would you go about paying this loan off from the bank by using the BRRR method and keep acquiring more and more properties until you're able to pay it off? Thanks, guys.

[Shiloh Lundahl]

@Jesus Farias Great Question. The way that the BRRRR method works is you need to acquire a property under market value first. You can either do this with your own money that you have saved up or you can use someone else's money such as a family member, friend, private money lender or hard money lender. Then you use more money to fix up the property. Here is an example. Let's say you were able to get a property for 70k. The property will be worth 120k after you are finished with the rehab (and let's say the rehab will cost 20k. Once you have finished with the rehab and you're all in to the property 90k (I am excluding holding costs and money costs in the example for simplicity) you then work on refinancing (or just financing if you used your own cash) the property. *** This is an important thing to keep in mind *** There is often a seasoning period which means that the bank won't give you a great loan to value on the property give until you have held the property for a certain period of time. Some banks want 6 months. Others want 12 months. I have even found some banks that want 2 years. However, I have recently found a bank that will do 3 months for seasoning. Anyway, after you get a tenant in the property and the bank issues you the new loan, you can pay off the earlier loan (or just replenish the cash that you used to buy and rehab the property) and you will start to use the rents that come in to start paying off the loan about a month after you close on the loan. Then once you get the property stabilized, you can repeat the process.