NEW TO REAL ESTATE AND BRRRR METHOD

[Andrew Neaville]

Hello! I am new to real estate investing and the BRRRR method. I am confused on how you will repay the loan after you refinance the house? Do you use the monthly rent money? Also, wouldn't the monthly payments be higher after the new appraisal of the rehabbed house? I get that the main point of this method is to use other peoples money, and you do not have any money in the game. Does the 'repeat' part just mean that you go on to the next house and start another deal with another investor? I know these are probably simple question, but I just can't wrap my head around it! Thanks for the help!

[Scott Passman]

I just want to put some numbers to what @Nick Rutkowski spelled out for you to help you conceptualize how the money/financing works.  Let's use this example:

Purchase price: 100k with 20% down and 8% interest rate (Hard money) would be about a $587/month payment.  

Rental Income: $1000/mo

Rehab: you put 20k down for rehab

Refinance: After putting rehab, the property reappraises at 150k.  So if you refinanced with 20% down again at a 5% interest rate it would come out to 150 x .8= 120k.  This means you would have 120k to pay off the original loan of 80,000 + recover the 20k you put into the rehab and 20k down payment.  This would leave you with $0 invested in the property since you pulled all your cash back out and theoretical infinite returns.  Since you have a larger loan, your new mortgage payment would be $644/mo, but if you can increase rent to $1100/month because of the upgrades then it works out in your favor anyway and you would still cash flow.

Now, these numbers are just hypothetical as an example to help you see how it all works out.  Hope that helps.