BRRRR Maxes Out After 2 Homes? Spreadsheet

[Trevor Nace]

I'm new to all of this so bear with me if my assumptions, math, or understanding is incorrect. However, I don't see how the math works beyond the 2nd BRRRR house.

Using my assumptions in the spreadsheet, here is the outcome after the 2nd BRRRR house compared to a traditional method of just paying the 25% down and rehab costs out of pocket for the two homes.

Assumptions: Both houses bought at $100k with 25% down, $20k put into each house for rehab, refinanced at 75% of $160k ARV for each house.

BRRRR Method End Result: You invested $45k of your own money and bought 2 $100k houses, spent $40k on rehabbing both houses, you're in $195k debt and own 2 houses with an ARV of $320k.

Traditional Method End Result: You invested $90k of your own money and bought 2 $100k houses, spent $40k on rehabbing both houses, you're in $150k debt and own 2 houses with an ARV of $320k.

Is the whole point of BRRRR to buy 2 houses with less total personal cash invested and more leveraged? What I read about BRRR makes it seem like it can endlessly fuel new acquisitions.

Link to public Google Sheets with the spreadsheet here.

Thanks for bearing with me during a learning curve!

[Whitney Hutten]

@Trevor Nace BRRRR works (I have 20 such units in my portfolio right now). I'm not so sure about your spreadsheet though.... Let me explain the math (I'll use an actual deal of mine where I paid all cash so we aren't complicating this with lending).

1. I bought a home (one that needs TLC... the bigger the problems potentially a better deal) for $52K

2. I put $28K into it for a rehab.  

3.  My all in was $70K once my rehab was done.  Then I tenanted it and it rented for $1100/mth 

4.  The home appraised for $100K (I knew this going into the deal too!).

5.  I took the home to bank.  The bank says "Great!  It appraises for $100K... we will give you a $75K loan".  I also got to roll in my refinance costs.

6. With the new loan, the property is cash flowing $325/mth after all expenses and reserves. Because the rents cover all expenses plus, I can continue to do this over and over again. I've bumped up my net worth by ~$25K, and my annual cashflow (COC only) by $3900 (almost 100% tax-free thanks to depreciation). Both the net worth and cashflow make me look better to the bank.

7. I now have my $70K (plus a couple of grand) out of the property.  

8.  I take my SAME $70K and go do that again and again!!!  And if you are able to save more from your "day job", you can add to this pot of money to do bigger projects or multiple projects at the same time.

It's insanely wild, to wrap your head around, but it works!  You are also getting paid by the tenant paying down your mortgage, and appreciation on the asset (amplified now that you have a loan).

Now to set expectations, you might not get all of your money back out of a project.  That doesn't mean you failed either... Say you have to leave $5-10K in... you now control a cashflowing asset at a fraction of the cost.

And you don't have to buy all cash either.  Here is an article if you are interested in using loans to supercharge your BRRRR strategy.