BRRRR Strategy - I don't get it.. what am I missing?

[Matt Powell]

Listening to @Brandon Turner's webinar on BRRRR, and his first example looks like this:

• Buy house for $70,000
• Rehab: $30,000
• Closing costs: $2,500
• Total cost: $102,500
• Appraised after rehab for $141,000
• Refinance: 80% ($112,800)

So, I think Brandon would still be in the hole after the refinance. Check my logic and figure out what I'm missing:

He's $102,500 in the hole after the rehab. Then he refinances, and has to put 20% down on the $141,000, which is another $28,200. So now he's $130,700 in the hole (102,500 + 28,200). The bank gives him a loan for $112,800, which isn't enough to cover his entire debt; it leaves him $17,900 in the hole (130,700 - 112,800)! Sure, he has 20% equity in the property, which is worth $28,200, but that's not tangible money. What if he borrowed everything and owes people money yesterday?

I don't see the benefit, and I must be missing something. Why not just buy a property already rehabbed at $141,000, put your 20% down, and not owe anybody $17,900? Somebody help a newbie out! Thanks.

[Don Harris]

@Matt Powell great Q and follow up by you and the community. I think this is one of the areas BP is good for when it is a legit Q from someone who is actually trying to learn (vs someone trying to vette some idea from a guru) You have asked the questions that hundreds of others didn't have the guts to ask but will benefit from reading. Several BPers are paying it forward for you (us) so that someday you (we) can do the same for the newest members. Persevere!