How does the BRRRR method work?

[Shawn Randolph]

Can someone explain to me how the BRRRR method works?

I just recently purchased a rental property back in February and I want to restructure my current loan. How does the process work? Do I have to own the property more than 6 months? Does my credit score need to be great. Do I need closing cost etc...

Thank You

[Ben Sears]

@ShawnRandolph There are a ton of posts and webinars on the BRRRR method on BP. I'll try to answer some of your specific questions in a quick post:

- The process of BRRRR (buy, renovate, rent, refinance, repeat) is just that...you purchase a property for cash, hard money, private lender, etc, renovate the property with the short term loan, rent the property, then refinance into a traditional mortgage.

- Seasoning, or owning the property a certain amount of time before you refinance, is up to your lender. Typically, a big bank is going to make you wait 6-12 months. Look at your community banks that don't sell their loans and fund them in house. They have much more flexibility. In fact, a bank that I'm looking at working with has no seasoning at all. 

- Your credit score is always a factor in a banks lending decision. The better your score and credit history, the better terms you will likely receive. 

- You will pay all of the typical closing costs, attorney's fees, etc. Pro tip: find a bank that will roll your pay your closing costs or roll them into your mortgage so you don't have to come out of pocket at closing. 

- The biggest hang up people have on the BRRRR method is that banks will typically only finance 75-80% LTV (loan to value). For example, you buy a property, renovate it, and rent it for a total of $100k invested. A bank is going to write you a mortgage for $75-80k max. You win the BRRRR method by having a property that appraises for 20-25% more than what you have invested. If you have a total of $75k invested in your property and it appraises for $100k then the bank writes you a mortgage that covers your entire investment without them knowing it. Any mortgage written above your investment costs would be a "cash out refinance" where you get your investment back plus cash. This is a personal business decision that you should make based on your risk tolerance and ability to have rent pay the mortgage along with your CapEx, profit, etc.

Hopefully this makes sense. Catch one of the webinars on BRRRR or pick up the book from the BP bookstore. It's incredibly enlightening.