BRRRR method: Does it decrease cash flow?

[Breelon Bryant]

Im new to investing and thinking about the BRRRR strategy. When cash refinancing a property, the "New loan" after the refinance is higher so doesnt that decrease your cash flow?

I understand that you are taking the cash out of the house to purchase more properties BUT isnt cash flow the reason MOST investors buy and hold?

Maybe I am thinking too deep into it but I need someone to explain to me whats the purpose of "buy and hold" if you are decreasing the cash flow thru BRRRR

[William Nelson]

@Breelon Bryant you are correct - you have more cashflow without a BRRR. The small detail you're missing is you have to pay taxes on all that additional cashflow, but you don't have to pay taxes on the re-financed money from the bank.

Let's give an example here to show the power of a BRRR, though. I encourage you to do the same for your own numbers!

Appraisal: $120k

Rent: $1,200 / month

Insurance: $60 / month

Taxes: $100 / month

No BRR....

Amount Owed: $60k

Terms: 4% on a 30yr mortgage

Payment: $446 / month (insurance and tax included)

Cash flow: $654 / month

Yearly Cashflow: $7,848 (pay taxes on this - assume @ 25%)

After Tax Cashflow: $5,886

Year 1 Profit: $5,886

BRRR....

Amount Owed: $96k

Terms: 4% on a 30yr mortgage

Payment: $618 / month (insurance and tax included)

Cash flow: $482 / month

Yearly Cashflow: $5,784 (pay taxes on this - assume @ 25%)

After Tax Cashflow: $4,338

Cash-Out from BRRR: $36k (do not pay taxes on this)

Year 1 Profit: $40,338

So as you can see from the numbers, you are going to sacrifice some cashflow ($1,548 per year in this example), but it would take years 23 years in this example to make up for the BRRR cash out of $36k. Plus, you'd be paying taxes on the extra cashflow every year, where-as you are not when you complete a re-finance during the BRRR process.

This doesn't even take into account every variable (like inflation, opportunity cost with those funds from the BRRR, etc.) but it shows the value in the process for sure.

At the end of the day, though, each situation depends on the risk tolerance of the investor and that is different for everyone! I encourage you to make the best decision for yourself and your situation. Let me know if you have any questions and best of luck!!