Confused on BRRR method. Help?

Question

Hi everyone! This is my first time posting after snooping around for a few months.

So I bought my first duplex last May and am living in one side and renting out the other which covers about 3/4 of my mortgage (taxes insurance and such all rolled in) I used an fha loan. I was wondering how the refinancing portion works exactly? I’ve tried looking but I’m still not quite sure. I wanna invest in more properties around me and just need some guidance. I get the buy-rehab-tent- refinance. Just having trouble understanding the refinancing aspect of it. Would anyone like to explain how that works? Thank you!

Greg Scott · Answer

@Aaron Austin

The BRRR method assumes the valuation is higher now than what you paid for the property.  This can happen several ways:

• You have improved the property so that its valuation is now higher
• The price you paid was so far below market you captured a lot of equity and its true value is more than you paid
• Time has passed and your property has appreciated

You simply refinance to pull out the equity in the house.

Joseph Firmin · Answer

You should start by understanding the value of your home right now. If you have renovated it or it has appreciated since you purchased it, you will be able to do a cash-out refinance. What this means is you will calculate your LTV (loan-to-value). Since this is a primary residence for you, you may be able to get a refinance at 80% LTV, but for an investment property you should be able to get 75% LTV. As an example - If your house is worth $100K now and your current loan on the property is for $50K, and this was an investment property, you should be able to refinance at $75000, meaning you would get the balance, $25K, ($75K-$50K) back in cash.  There are refinance calculators online you can use to help. It is a pretty straightforward process, replacing your current property loan for a higher loan amount, and receiving the difference in cash for you to use on another investment property.

Aaron A. · Answer

@Joseph Firmin

Thank you for taking the time to explain that!

Lori Greene · Answer

Yes, the most important aspect of all of this is knowing a current and accurate value for your property vs how much you now owe. My advice is to get a very detailed CMA (Comparative Market Analysis) from a realtor with value adjustments for the differences between your property and it's comparables. I can help you with analyzing for an accurate value. Then you could shop around for refinancing, taking all closing costs and LTV into consideration to know how much cash you can actually get out.

Aaron A. · Answer

@Greg Scott

Thanks Greg! I appreciate the help

Confused on BRRR method. Help?

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