I'm confused with the BRRR strategy

[Gabriel Martinez]

Hello everyone, I'm technically still new to BP and I have a question about BRRR strategy and can't seem to understand it.

Say, I'm looking to purchase my first property, I run the numbers and everything looks great for a tenant. Fast forward 6 months and my ARV is significantly higher and I'm ready to refinance to withdraw the equity I made off the house. Wouldn't my numbers not work anymore because I have a greater loan amount and in turn wouldn't be able to make enough off the market rent anymore? Somehow I can't seem to wrap my head around this concept. Would someone please explain this to me please?

Thank you in advance,

Gabriel Martinez 

[Austin Fruechting]

Your cash flow will go down after you refinance and have a larger mortgage. If you can't still make cash flow off a 70-75% LTV, then it's not a great candidate for BRRRR-ing.

The difference is the opportunity cost of that money. You can leave it in there and say make $400 per month... with maybe $40k invested... or you refinance it, make $200 per month with ZERO invested (infinite return) and put that $40k into another BRRRR. Do the same thing and refinance. Now with two you're making the same cash flow as with the one... AND you have tenants paying for two properties for you... AND you have your money back so you can go do it again, and again, and again.