The BRRRR Method/ Fundamental Problem with Refinancing

[David Kohli]

Hey Guys, 

I came across the BRRRR Strategy. It seemed very easy and clear at first but when I looked deeper into this concept, it appeared to me that it has some hidden problems. As long as I understood this method clearly, I think that the point where you make your money is with refinancing your deal. Let´s say you invested 245.000$ (200.000 for the property and 45.000 for the rehab) and the ARV of the property is 350.000$.You´ll get a refinancing loan of 262.500$ (0,75% of the ARV that was estimated by the appraiser).

Subtracting 245k from 262.5k, that´ll leave you with 17.500$ of "profit". 

My problem with that: It does not seem to be real profit as you have to pay it back to the bank. In the long term, you wont have those 17.500$ because you paid them back because after all, there still is a mortgage on that house. Even worse: You´ll probably have to pay interest of the loan (let us assume the interest rate is 2%, then you have to pay back 267.750€). So in the end, you lost 22.750?! (the presumed profit of 17.500$ plus the interest of the refinancing loan = 5.250$ -> 22.750$.)

The reason I left the rent out is because anyone calculating this is leaving it out too, even Brandon in his podcast. Did I get the strategy fundamentally wrong? Or is there something that I did not take into consideration? I would love to discuss this with someone that fully understood this. 

Thank You very much.

Best regards, 

David