How about a little more clarity on the BRRRR Method???

[Account Closed]

Thanks for Reading and any feedback... I have the BRRRR Method understood up to this point.

So, let’s say I found a property... Locked it up, got a loan and did the rehab. Once I find a tenant to occupy the property, with those rents from that tenant, should I start paying on the loan until the property is eligible for refi???

[Jeff Copeland]

I'm not sure I understand your question. But I find that examples help to clarify the process. So, let't say I have a house that I'm selling you for $100k. It needs a $30k rehab, and would then be worth $175k (ARV):

• You buy the house from me with $100k (cash)
• You renovate the house and spend $30k (cash) on the renovations. 
• You rent the house for $1500/mo.
• You do a cash out refinance on the house. Most lenders will do 75% LTV on a refi, so you're able to "pull out" $131,250 ($175k x 75%).
• Your total investment in this house was $130k, and you just got $131,250 back in your cash-out refi. Now you have none of your own money tied up in the house, and you still own the house, and your tenants are paying your mortgage. 
• Now you repeat the process. 

If you weren't using cash in step one (say you used $100k hard money instead), then your liens/mortgages would have been paid off at closing. In that scenario:

• You used $100k hard money for the purchase
• You used $30k cash for the rehab
• You pulled out $132,250 in your cash out refi. 
• The $100k loan was paid off at closing.
• You get your $30k rehab money back. You still own the house, and tenants pay the new mortgage.

Whether you make payments on your hard money loan during the rehab (which I assume is what you were asking about when you said "should I start paying on the loan until the property is eligible for refi?") depends on the terms of your hard money loan. Some lenders expect interest only payments every month. Others get paid principal and inters at closing.

Note that you are typically buying with cash or hard money when using this method, because the property often needs to much work to qualify for conventional financing initially.

Obviously, all of the above numbers ignore closing costs and commissions.