Understanding the BRRRR strategy. Am i close? Kindly see please

[Lee Cruz]

Hello all

im a bit stuck on the BRRRR strategy especially the refinance part when im trying to apply my numbers. Ill try to spell everything out as much as i can.

Purchase Price: $173,500 

Down payment 20% - $34,700

ARV: $185,000 (conservative)

Repairs: $80000

Closing Costs: $3000

Total: $45,700

Income: $1957

Expenses: $1529

monthly cashflow: $427

cash on cash roi: 12.39%

So at this point i would contact a hard money lender and get a loan of $185,000? Possibly at 10-12%? Refinance with a credit union a year later with the ARV of $185,000? 70% of that would be $129,500.

This is where im stuck. At this point what is the full figure i pay back the lender? How do i get my money back out to put into another rental? Are these numbers correct? How do i efficiently use that $129,500? Sorry i know im all over the place. Is there any PRO members here that i can send my calculations to go over? Thanks for reading my post.

[Lee S.]

plenty of info here on BP regarding BRRRR strategy. It looks like the issue with your deal is you don't seem to be buying at a discount. If you add up your purchase price + repairs (I'm assuming it's 8k and not 80k?) you are basically paying retail. You won't be able to refinance out much if any of your down payment and rehab funds.

The key to this strategy is buying significantly below market and rehabbing to add value with hopes to be all in at 75% ARV or better. You should be buying the property cheap enough that you could resale it for a profit without even touching it.

If we add up your purchase price (173k) plus closing costs (3k) plus your repair costs (8k) we have 184k. Your conservative ARV is 185k, doesn't work.

You need to buy this property for 130k max based on your numbers to make a perfect BRRRR work.

Couple examples that I've done recently:

Purchase for 95k, rehab 60k, ARV 250k.

Purchase price 107.5k, rehab 35k, ARV 200k.