USING THE BRRRR STRATEGY

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USING THE BRRRR STRATEGY

Account Closed
Member since 2019 · 13 posts · 2 votes

Hello! So I have some questions, I'm trying to figure out the BRRRR Strategy. How do you come up with the equity/cash out at the end of the last step? Is there an equation to solve it, to find the answer? There is a house that cost $70k repairs will cost $30k, and according to the realtor I will make $30500 equity at the end. How did he come with that number?

The ARV is $140k

My understanding is that you can do a 75-80% cash our refi of the value after 6 months seasoning.

But I thought the lender can only give you 75-80% of the value of the house which means I will only get $105,000, not the $140k so at the end I will have $5k equity, not $30,500. 
I’m very confused with this. Can someone help me clear things up? It will be very much appreciated.

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Ryan Baxter
Rental Property Investor · Aspen, CO · Member since 2019 · 4 posts · 4 votes
6y

@Christian Haley I'm in the same boat as you, just getting started. I've read BRRRR twice now. What has helped me the most is just finding a house on Zillow and then running the numbers by hand. Basically the 4 square method but I don't actually make the square. After doing this a few times the numbers clicked and I understood the metrics. After doing it quite a few times I started seeing deals on Zillow and would instantly have a feeling for if it was a good deal or not just based on price, sqft, DOM, condition and location, ect. If something caught my eye I would pencil the numbers.

Another good book I recommend is "Never Split the Difference" by Chris Voss. Amazing insight on negotiating for what you want. I listened to that on audio book 3 times. It's only 8 hours so goes fast. 


Good luck on your journey.  

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  • Jim Pellerin
    Real Estate Consultant · USA · Member since 2014 · 1k+ posts · 751 votes
    6y

    @Account Closed You are confusing the terms equity and cash out. Equity is the difference between what your property is worth and the amount owed or invested. According to the numbers you provided and using $140K ARV, your equity would be $40K. If you refinance at 80% LTV you would have a new mortgage at $112K which means you could take out only ($112K - $70K - $30K) = $12K. NOt sure were the $30,500 comes from.

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  • Christian Haley
    Kansas City · Member since 2019 · 12 posts · 6 votes
    6y

    @Jim Pellerin Thank you for that response to his question! Definitely helped me clear some stuff up too. I am just now getting into real estate investing and trying to learn everything I can. Picked up David Greene's BRRRR book. Do you have any specific recommendations for other books you think could help new investors like me on this journey?

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  • Jim Pellerin
    Real Estate Consultant · USA · Member since 2014 · 1k+ posts · 751 votes
    6y

    @Christian Haley It depends on what strategies you are looking to employ. 

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  • Ryan Baxter
    Rental Property Investor · Aspen, CO · Member since 2019 · 4 posts · 4 votes
    6y

    @Christian Haley I'm in the same boat as you, just getting started. I've read BRRRR twice now. What has helped me the most is just finding a house on Zillow and then running the numbers by hand. Basically the 4 square method but I don't actually make the square. After doing this a few times the numbers clicked and I understood the metrics. After doing it quite a few times I started seeing deals on Zillow and would instantly have a feeling for if it was a good deal or not just based on price, sqft, DOM, condition and location, ect. If something caught my eye I would pencil the numbers.

    Another good book I recommend is "Never Split the Difference" by Chris Voss. Amazing insight on negotiating for what you want. I listened to that on audio book 3 times. It's only 8 hours so goes fast. 


    Good luck on your journey.  

    1Reply
  • Alex Jones
    Rental Property Investor · Rochester, NY · Member since 2013 · 162 posts · 127 votes
    6y

    @Christian Haley I have read this book BRRRR by author David Greene. It has been big helpful in understanding how the BRRRR strategy and methodology work. This book completely transformed the way I approach real estate business and view property. I'm still searching for my first BRRRR property.

    Alex

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  • Account Closed
    OP
    Member since 2019 · 13 posts · 2 votes
    6y

    @Jim Pellerin Thank you for the clarification. I was very confused. Another question, when you refinance, do you need a down payment?

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  • Christian Haley
    Kansas City · Member since 2019 · 12 posts · 6 votes
    6y

    @Ryan Baxter

    I am definitely going to have to try that. I appreciate the advice!! Will start on it today!

    0Reply
  • Christian Haley
    Kansas City · Member since 2019 · 12 posts · 6 votes
    6y

    @Alex Jones

    I’m about a quarter of the way in and it’s definitely clearing a path for me to succeed - just gotta put the time in and educate myself to be prepared when I’m put in the position to buy my first property. Good luck on your journey and don’t be a stranger!

    1Reply
  • Jim Pellerin
    Real Estate Consultant · USA · Member since 2014 · 1k+ posts · 751 votes
    6y

    @Ryan Baxter No, you don't need a down payment to refinance. You refinance to pull money out of your property. The 20% equity that stays in the property services as the "security" for the lender.

    0Reply
  • Account Closed
    OP
    Member since 2019 · 13 posts · 2 votes
    6y

    Thanks again. I will keep learning more and will try to buy my second property using this strategy soon. Have a great day!

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