Confused on the Refinancing part of the BRRRR strategy

[Ranny Ma]

I'm having a hard time wrapping my head around the refinancing part of the BRRRR strategy. What is the purpose of refinancing the property? I understand getting a new appraisal after the rehab will increase the property's value, I'm not understanding where refinancing fits into the equation.

[Michael Randle]

My understanding is that refinancing is really CASH OUT refinancing. When you do that you now have more money to go an re-invest in another BRRRR unit and continue down the road.

Numbers for example:

Buy a house for $50k ($10k down $40k Hard Money lender or other)

Rehab the house for $15k

Rent the house for $500/month

Refinance the house for $80k (80% loan to value)

Repeat by taking the $15k you now have in cash into another house.

Now that is the quick and dirty 40,000 foot over view. And your numbers are going to change depending on where you are. And there are sticking points at almost every step that can throw you off. But in general that is the theory.