Am I understanding the BRRR method correctly?

[Jimmy Lieu]

I am primarily confused with how to get my money out to repeat the process.

Let's say I use HML and put 20% down on a 100k property so I get an 80k loan from the HML. The rehab cost is 50k borrowed from HML. The closing/holding cost is $7.5k. The ARV is 250k.

With the 250k ARV, I can take 75% out in a refinance ($187,500). With the refinance, I will need to subtract out the initial 80k loan, 50k rehab cost, holding/costing costs, and the HML interest.

187.5k - 80k - 50k - 7.5k - (HML interest) = $50k

The 50k is remaining is the cash I can pull out from the refinance process and use for my next property. With the current 250K ARV property, I have 25% equity in it and I am gradually paying off the mortgage by renting it out correct?

Is everything I have stated here correct?

Thanks so much in advance.

[Ryan Murdock]

@Jimmy Lieu That's how it works my friend! With that $50k you pull out you can either take it in cash as part of the cash out refi, or, something I've done on occasion is just keep a line of credit (LOC) for that amount in addition to the mortgage.

In your example it would be a fixed rate mortgage for $137,500 and an LOC for $50k. That way you can draw on the $50k when you need it but you're not paying interest on it when you don't. You might be able to find either a fixed rate mortgage or LOC that will go as high as 80% LTV too instead of just 75%.