Calling the BRRRR method experts to understand how it works

[Michael A.]

I'm trying to understand the different strategies using the BRRRR method and how it generally works. I'm hoping some investors can contribute to the discussion and help answer my questions. Thanks.

From what I understand, it involves getting money from a hard money lender to buy and fix up a property. 

For example, 

hard money loan of $100k

Purchase price $200k

20% Down = $40k

$60k in fixing it up. 

New appraised value of $400k. 

Rent it out.

1: from here would you cash out refinance or sell the property to pay back the loan? 

2: If you cash out refinance let's say 75% of $400k, what do you do with the left over money after paying back the hard money loan. Do you use the left over cash out money to buy another rental? Or do you do the BRRRR method again this time using your own money?

3: Is the BRRRR method best for 2-4 unit properties or single family?

4: How many months should the BRRRR method take?

5: Where do you find a good hard money lender? Bigger pockets? 

[Jeremy H.]

Stopped ready after the first few lines...because it got little weird 

The BRRRR method will generally go like this

- Buy in cash (whichever manner you choose) - Let's say purchase price is 100k

- Rehab in cash (whichever method you choose) - Let's say 40k rehab

- Rehab the house, get it rented out, and wait for "seasoning" (generally 6 months, although there are many different loan programs available here as well)

- Refinance the house (generally a cash out refi up to 75% LTV) Hopefully you have bought under market and can get most of your money back out.

Now there are nuances to almost every part of it and this post could turn into a blog over the different lending options. You'll find this is a cool method but works only on select properties where the rent can cover the cost of the mortgage (where the mortgage balance is 75% ARV) plus any additional cashflow you require.

As far as to answer your specific questions:

1) If you sold the property it'd be a flip not a BRRRR. So you'd cash out refi and turn it into a rental

2) You can do whatever you like with the money you made. If you want to do RE, might make sense to snowball it into more properties

3) Works equally as good on either - you'll find more SFH that need rehab as opposed to 2-4 MFH though. At least in my area

4) Rehab will generally take 3-6 months depending on the level of rehab, availability of labor and materials, permits etc 

5) Bigger pockets is a great place to start - then ask lenders, RE agents, other investors in your area etc