BRRRR Investing Question

[Matthew Roberts]

I'm looking to begin investing in the San Diego. For BRRRR investing, why can't you take out a normal loan on a home and then fix it up and then refinance it? If I'm trying to buy a SFR here in San Diego, I'm going to need at least $400k in cash from myself or a private lender. That seems unlikely so couldn't I take out a loan with a 5% downpayment of $20k and then use say another $50k to fix it up. If the ARV is say $500k could I then refinance and get all my money back? Pretty new to this so I'm trying to figure out why you'd use cash.

[Christopher Phillips]

@Matthew Roberts

BRRRR works by buying a property at a deep discount due to the condition or the seller's situation. That being the case, it will be unlikely that you'll be able to get regular financing on the property. So, you'll have to use either cash or HML/private sources.

Lenders will generally only do refi of 75% of ARV. So, to get your money back out, you have to make sure that the Purchase (cash or HML financing) + Rehab + Closing Costs are Less than 75% ARV. This allows you to get back your initial investment to repeat elsewhere.