Requesting help explaining the BRRRR strategy

[Alex L.]

Hi Everyone,

I have been reading and listening to a lot of BP books and podcasts but I think I need clarification on the BRRRR strategy. The way I understand it is using an example like this:

A house is listed for $30k that needs repaired. I estimate those repair costs will be about $15k (material and labor). I go to the bank and ask for a loan for $45k. I get approved and I put $9k (20%) down. After the rehab is finished I have an appraiser come through to determine the new value of the house. The new value is $55k. I go back to the bank and refinance. 

One of my questions is, do I "get" money back from this deal from the bank due to the higher ARV? Do I get the difference of the ARV less the original loan amount? Will I need a new interest rate? Does the bank cut me a check for hard cash to repeat?

TYIA for any replies to this! I am hoping to become more active, and hopefully purchase my first rental before the end of the year. 

Alex

[Paul Welden]

@Steven Foster Wilson Yes, I have many clients use rehab loans to purchase homes. 

In a seller's market, using rehab loans can be more challenging, but in a normal or even a buyer's market, they are much easier. 

Rehab loans are usually only a headache when the right lender, right Realtor, and the right contractor are NOT used. 

Working with a lender with rehab loan experience, a Realtor who is not afraid of rehab loans or actually has experience with them, and a Certified 203k Contractor, rehab loans can be super easy and can close in 45 days with no problems.