A question about BRRRR

[Warren Bright]

Hi everyone.

So I am trying to understand this BRRRR strategy a bit more, and in doing so stumbled across a question that I have which I hope you can help me answer.

To set up a little scenario:

• You purchase a property at $100,000
• Deposit is at $40,000
• You require a loan of $60,000

To make things simple I am not going to include transfer costs etc...

Lets say you have waited 5 years and your new value of the property is sitting at $125,000.

You then look to refinance at 70% LTV and get a new loan of $87,500 based off current value of the home.

And now my question:

This lump some of money that you receive, is it used to pay off your previous loan of $60,000, leaving you with only $27,500?

or

Do you leave your previous loan and now essentially have two loans to pay off. (If this is the case my query follows). How are you able to keep BRRRR'ing if you have multiple loans and only earning one set salary. Surely you wont be able to qualify for all those loans?

I am just a bit confused and would love an explanation.

Greatly appreciated!