3 Questions about BRRRR

[Jack Norris]

I have a couple of questions about aspects of the BRRRR process. Apologies in advance if these are obvious, I'm still trying to fully understand it.

1. When you first buy, can conventional financing be used with the same lender that you eventually will refinance with? Or do you need to buy without financing in order for this all to work?
2. Does the refinance part require a new down payment?
3. Once you refinance, your loan balance will drastically increase. And your cash flow will decrease. I understand that the point is to pull your money out of the deal and move on to the next, but doesn't this put you that much further from owning the property free and clear?

[Christopher Phillips]

@Jack Norris

The point of BRRRR is to lower your risks by purchasing at a bigger discount due to the distressed nature of the property. In general...

1. That means you won't be able to use a conventional loan. Will have to be cash, hard-money loan, or private loan.

2. Cash-out is usually 65% to 75% of after repair value (ARV). So, you're leaving equity in the property, which means no downpayment. But there will be closing costs.

3. You generally aren't looking to be free-and-clear. That means your money is tied up in the asset instead of using it for more purchases or repairs to existing properties.

To do the proper analysis, you have to consider the ARV cash flow once the property is repaired and rented out to make sure it will have positive cash flow after rents, mortgage, and reserves.