I'm trying to fully understand the value of brrrr while still being a newbie, what is the value or point of the refi part? How do you receive your money back in order to reinvest?
@Phillip Davis this strategy works when you get a property at a discount and are able to complete a rehab that will take your ARV where it needs to be in terms of added equity for the refinance stage. The key is knowing that there is that value in the property.
Here's some rough numbers for simplicity and I do keep it very simple:
Purchase Price: $50,000
After Repair Value (ARV): $100,000
Total $ into property: $65,000
So you have a property you bought for 50k, rehabbed for 15k and now its appraised value is 100k. You have a total of 65k in the deal and have 35k of equity in the property now.
The bank will only refinance for around 70% of the ARV that we know is 100k. So they will refinance your deal at 70K covering the amount you have into the property plus 5k. The reason the bank is willing to do this is the equity in the property. Think of the equity as your new down payment. The bank looks at it as if you have put 30% down on a property worth 100k. Refinancing at 70% gives the bank some wiggle room if the appraisal is a little off.
Like I said very simple explanation and obviously there is a lot more to the logistics of the deal, but this is the basic concept. Hopefully this helps you understand it. Took me a while to get the thought process right in my head as this is something I really want to implement in the future once I have a few deals under my belt.
Howdy @Phillip Davis
The value of the BRRRR strategy is the ability to reuse the same cash over and over again to increase your portfolio infinitely. Of course that depends on you applying the principles correctly.
The value/point of the Refi is your ability to acquire and rehabbing a distressed property using your cash, OPM (Other Peoples Money), or a combination. Then being able to recoup your money and any borrowed because you were able to force a significant increase in appreciation.
You receive your money at the Refi closing. A check is cut for you and any other lenders required to be paid off. You deposit that check into your bank account and the process starts all over again.
Thank you for the responses, and please forgive me as I am new to this. How does the refi work to get your money back? This is the detail that is alluding me.
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