Hey y'all I just moved back to CO after 15 years in Austin TX

[Ralph Smith]

Hey y'all I just moved back to CO after spending 15 years in Austin, TX. Been on the FI road for a while and I'm looking to expand into real estate.

I've reading up. Can anybody help explain a scenario that seems related to the refinance piece involved in the BRRRR strategy. Specifically I'd like clarification on how you get your money out.

Let's say you have a property valued at $100,000. You acquired it with a conventional loan and 20% ($20,000) down. You've been making payments 2 years and you now owe only 60% ($60,000). 

So is it the case that you would attempt to refinance for 70% ($70,000) of that value meaning you would get a check for $10,000 that you could then use for future investments?

That's my understanding of how the math works, but in reality I still have my $20,000 in the house and I'm just pulling out the equity. Even if I used other people's money I could only pay back $10,000. 

Obviously the numbers are just made to make the math easy and this isn't exactly BRRRR case study, but I've ran across this situation a couple of times and I'm just wondering if there's a way to get you money out in this scenario. It seem like it would be similar to leveraging against existing properties, but I'm not seeing the real benefit. Unless you have a ton of equity and you just want a low interest loan.

[Ralph Smith]

Thanks for the geetings! 

I think I've got the math figured out now. In my case there was significant appreciation which I didn't show and wasn't thinking about with the example numbers I gave. 

That was key piece I was missing. Similar to having a having a higher value property after rehab (ARV) which would allow for a bigger loan just assuming 70% loan to value (LTV).

Just to add to my example. After appreciation the property is now valued at $130,000.

Now we refinance for 70% LTV ($90,000) and we receive a check for $30,000. Now I've got my initial $20,000 out plus $10,000 from equity.

Of course there's been payments over the two year period so it depends on the situation if that $10,000 is a plus or minus and we'd want to make sure the property is still cash flowing on that new loan, but I think I've got the "how" down now.

Cheers!