I found my new tool, A HAMMER!

I've been searching for a new tool for my financing belt that I could use for the BRRRR method, and I think I just found it.

Look how powerful it is!

For those who don't know, the BRRRR method is a process of purchasing a property, increasing its value, and refinancing it to pull your invested money back out. This allows you to re-use your hard earned money in another project.

Here's a high level overview of the process.

Buy - buy a property. Usually through hard money loans or cash. This is probably one of the highest barrier to entry to use this method for new investors like myself. The properties used for this method usually are distressed or cannot be purchased with a regular loan because they are trashed. You want to buy properties way below market value.

Rehab - this will increase the value of the property and also make it livable again. Use this opportunity to make the property worth something again.

Refinance - this is where you "cash out refinance" or simply, refinance the property for it's new, higher ARV. (After Repair Value) This will hopefully make it so you pull out most if not all of your money that you invested into the project so far.

Repeat - Repeat.

Confused? So was I.

Here's an example.

1. You buy a property with cash. Normally the property is worth $100,000 but you get it for $40,000 because it's unlivable and distressed.
2. You put in $25,000 to rehab the property. Fix the walls, clear the nasty smell, upgrade the kitchen and bathrooms, etc.
3. Now you refinance the property. After all your upgrades, the property now has an ARV of $110,000. The average loan banks will allow you to pull out of your properties ARV is 75%. So you get a loan for $82,500. You only invested $65,000 into the property and got $82,500 back out.
4. Repeat. You pay back your $65,000 that you invested and have $82,500 to do this all over again with your next property.

Okay... so? What kind of metaphorical tool does your hammer represent?

With all that said, I don't have the cash or experience and connections to do hard money loans. I'm a new investor after all.

Enter the HELOC

What the heck is a HELOC? It's a Home Equity Line of Credit.

What the heck is a Home Equity Line of Credit? It's a line of credit that you have access to that is a percentage of the equity in your home.

So let's say you have a $150,000 home free and clear. You can take out a HELOC for, on average, 70% of the equity. So you basically have a credit card for $105,000!

You can use this HELOC to gamble away in Vegas, go to Disney World, or... invest!

For my BRRRR example above, you could have used your HELOC to buy the house for $40,000 and pay for the $25,000 in repairs. After you refinance the home, you could pay your HELOC off and just repeat the process!

Sounds to good to be true? Well there are some drawbacks. The interest is higher than standard conventional loans and also variable. So it can change with the market. But it's a new tool that any new investor with a paid off mortgage could use to really accelerate their portfolio.

For me, this will be an amazing tool to utilize and recycle my money over and over. I don't want to go sonic the hedgehog fast with building my portfolio. But I do want to go Usain Bolt fast. And this is the tool that will help me do just that!

Hope that was helpful. See y'all next time!