New to REI. Question about BRRRR.

8 Replies

This is my first post on here. I have been wanting to get into real estate for years now and have been researching a lot more lately. I am very interested in 4 plex's and similar rentals and just found out about the BRRRR method.

I bought a townhouse that I am currently living in, with the intention to use it as a rental property. So this townhouse was my first step into this. It appraises at $70k and we owe about $58k. My question is, could I potentially refinance my townhouse and use that money to kick start this thing and buy another property? 

I am just learning about this stuff and don't know a lot of details but I know this is what I want to do, I just haven't taken the leap.

Thank you for the help.

Welcome to BP. Great that you're in your own home. At this stage, you DON'T have enough equity to be ready to do the Refi part of the BRRRR strategy, but hopefully your own income will allow you to SAVE for a 3.5% deposit for an FHA-approved Loan for your NEXT primary.

The difference is, you're NOW more knowledgeable about what it takes to be able to Refi all your deposit back again for NEXT time (eg. if your next one also appraises at $70k, you need to have no more into it than $49k (70%), including your deposit. ie. Look for BARGAIN deals. All the best...

@Blake Antis the main thing you need to remember about BRRRR is it will only work when your all in costs (purchase, rehab, closing costs, etc.) equals 70% of ARV. The 70% of ARV is the max amount that a bank will refinance you for (can't remember if it's 70 or 75 so in this example I'll use 70%). So if you have a property with a 100K ARV, your all in cost must be no greater than 70K. You can still perform a BRRRR strategy if your all in was 75k, but at the end of the day that would cost you 5k out of pocket. So it all depends what you are aiming for. Most people are looking to get their whole investment back to repeat the process again and again. But in this example 5k out of pocket is equivalent to a less 6.6% down payment (5/75), which beats a 25% down payment any day.

I guess I'm lost why it needs to be 70%? What if I had the funds in hand to cover the rest?

Originally posted by @Blake Antis :

I guess I'm lost why it needs to be 70%? What if I had the funds in hand to cover the rest?

The idea of BRRRR is that however much you put down on your first buy, ALL of it can be returned to you on the Refi "R", so that the Repeat "R" is with NO extra money coming from you!

Get it? If you've already got funds to keep buying, just keep buying! Why wait? No need for Refi!

The 70% refers to the COMMON Lender's percentage lent out, based on THEIR appraisal.

Yes, I know that some folk here will TRY to BRRRR even if they have to keep on putting in their own extra money for EVERY Buy. But know this: your investing will slow down, and you won't be able to scale your Buys nearly as much as if you're successful with the first paragraph's "idea".

Originally posted by @Brent Coombs :
Originally posted by @Blake Antis:

I guess I'm lost why it needs to be 70%? What if I had the funds in hand to cover the rest?

The idea of BRRRR is that however much you put down on your first buy, ALL of it can be returned to you on the Refi "R", so that the Repeat "R" is with NO extra money coming from you!

Get it? If you've already got funds to keep buying, just keep buying! Why wait? No need for Refi!

The 70% refers to the COMMON Lender's percentage lent out, based on THEIR appraisal.

Yes, I know that some folk here will TRY to BRRRR even if they have to keep on putting in their own extra money for EVERY Buy. But know this: your investing will slow down, and you won't be able to scale your Buys nearly as much as if you're successful with the first paragraph's "idea".

 I got it. I don't have ALL the funds yet. That's why I was considering a refi so that I will have enough. Is that even possible? Will I be able to get a refi on my townhouse?

My wife and I also want to get into a different home so I am trying to figure out what direction to go. Thank you for the advice.

@Blake Antis - Banks will not lend/refinance 100% of a property's value. Most will only refi at 70-80% loan to value (LTV).

If your townhouse is worth $70k, you could refinance about $56k max at 80% LTV. Since you still owe $58k, there's no equity there to cash out.

And keep in mind the value in the LTV calculation is based on the bank's appraisal, and refi appraisals tend to be very conservative. 

Originally posted by @Jeff Copeland :

@Blake Antis - Banks will not lend/refinance 100% of a property's value. Most will only refi at 70-80% loan to value (LTV).

If your townhouse is worth $70k, you could refinance about $56k max at 80% LTV. Since you still owe $58k, there's no equity there to cash out.

And keep in mind the value in the LTV calculation is based on the bank's appraisal, and refi appraisals tend to be very conservative. 

I see. It's starting to make a lot more sense. Thank you.

I need to learn more about getting financing and capitol to get this started.

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