BRRRR and Decreased Cash Flow

[Rhonda Davis]

I have watched and listened to many podcasts teaching the BRRRR strategy. It seems they never emphasize a due diligence step that is important to me. As I now consider making my first BRRRR move, my analysis involves looking at the property numbers even after the cash-out refinance. I mean, I go thru all the steps to calculate NOI, ROI, CoC, etc before making my purchase. So, shouldn't it be equally important to estimate applicable metrics, when my monthly P&I is going to change with the refinance?

Everyone uses the term “pulling money out”. To me, it’s borrowing more the second time than I did the first time on the same property, collecting the same rent. I know. I understand leverage, appreciation, and the Velocity of Money (I think). I will not pocket this pulled-out/borrowed money. I will reinvest.

Still, it seems this is an important point that should be made when teaching BRRRR. For example, my measly $300 monthly cash flow could end up being an even measlier (if that's a word) $200 a month.

It might not mean I shouldn’t do it. But it does mean I should calculate and consider it, during my initial analysis. Right? 

[Greg Scott]

Absolutely you should calculate it and understand the impact to your cash flow.

Here is another calculation I would encourage you to do:

• Take your current cash flow and divide by your equity in the house to derive your return on equity (ROE)
• Compare that to your future cash flow and future equity to figure out your ROE after refinancing

In most cases you will find that your ROE goes UP through a cash-out refi.  The money you have left in the property is now working harder for you than it was before.   That is why we take the money out.  Go put the refi money to good use and do it again!