I am new BP and have been reading a lot about the BRRRR (to many Rs?) strategy, and I keep getting hung up on the refinancing part. For example: I am going to buy a $100K house that has an ARV of $200K. The home needs $30K worth of work, so I would be into it for around $130K. Once the work is completed, I wait 6 months to a year to go to a bank for refinancing to take $40-$50K of equity out of the house and then essentially repeat that process. The question that keeps stumping me is, when I refinance the original loan to take the equity, would that not raise my mortgage payment on the original house, therefore cutting down my potential profits on the next purchase?
Any insight will be greatly appreciated.
Also, any feedback on my usage of an example would be appreciated, so I won't sound like such a rookie next time.
@Bradley Snyder , Yes it would raise your mortgage payment as you are raising the mortgage to draw out the equity. I would look at the profits/cash flow of the current house and not into the future of your next house. Run the numbers on your first house with the increased mortgage to make sure your profits are there after the mortgage increase before you purchase the property if you plan on using the BRRR strategy. If the cash flow was no there then I would not purchase that property.
@Clayton Plank thank you, that makes sense. I keep seeing all of the scenarios with people pulling equity out for the next deal but they never mentions what it does to the mortgage on the first deal. Thank you again for the reply.
@Bradley Snyder , Just look at what the numbers will be in the end when you refinance and work backwards from there. This will let you know if the property is going to work. Also it will let you know where your purchase price should be to make it work.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing