BRRRR Refinance Question

[Braeden Henry]

Can someone throughly explain exactly how the refinance aspect in BRRRR works? Like how can one get money to get another house without it being their own money? Can you buy a house in cash from the equity in a refinance? Does the refinance money pay for rehab costs of another house?

[Alvin Sylvain]

Originally posted by @Braeden Henry:

Can someone throughly explain exactly how the refinance aspect in BRRRR works? Like how can one get money to get another house without it being their own money? Can you buy a house in cash from the equity in a refinance? Does the refinance money pay for rehab costs of another house?

 I don't recall which "R" it is, but one of those "R"'s is "Repair" (or maybe "Rehab")

This means you get your equity from buying a property on the cheap, then fixing it up to improve the value. Then you invoke another "R" for "Refinance", but now refinancing at the higher value.

If you do it right, the rents will cover the payments on this new loan, which essentially translates into "free money".

Then you get the next "R", "Repeat". After some period of time, you go out and find another property in need of repairs than you can buy on the cheap.

In terms of whether the money gained from loans on property A will pay for the repairs on property B depend on the exact numbers involved. Things like how much you borrowed to acquire property A, such as 30% down on the depressed value, or if the depressed value is low enough to pay all cash.

Remember, the key is (depressed value + rehab cost) is hopefully a lot less than (improved value). Your first loan, if you're not buying cash, is against the (depressed value + rehab cost). Your next loan is against the higher improved value, which you use to pay off the first loan and invest in the next project.

I think BP has a BRRRR calculator online. It will probably help you visualize the parts of the process if you ran a few made-up scenarios through the calculator.