BRRR Part "Refinance" - Need some help

[Pat Leri]

So help me in the last part of BRRR.

Understand BUY

Understand REHAB

Understand RENT

Don't understand completely CASH OUT REFINANCE.

I'm trying to understand: Do I actually get cash in my hand which belongs to me and can keep OR do I get cash I need to pay back like a loan. Or both of it.

What exactly is the difference between 'refinance' and 'cash out refinance'.

In my case I buy the first property with cash. I don't finance (I do this to push the price down to get close to the 70% rule). After I REHAB, RENT I'd like to have cash again (since all is gone in the first house) to buy a second house.

Additional to cash for a down payment I need a loan (since the cash might not be enough). By right I can get a loan based on my income. Why do I need the house as a security?

I might be in a total wrong path here.

[Ned Carey]

@Pat Leri the "Refinance part assumes you used financing in the first place. If you paid all cash then I guess you could just say you are "financing " instead of Re-Financing" you property.  But that is just a mater of semantics.

The difference between a "refinancing" and a "cash out refinancing" is when you refinance you are only replacing the original loan amount. A cash out refinancing  means you are taking out more than the original loan.

Example: You get a loan for $60k to buy and rehab a house. You are into the property for $75k total; $40k for purchase, $30k in renovations, and $5k. You had to come up with $15k cash to make the deal work.  The idea is to do a "Cash Back Refinance" so you can pay back the short term loan and get your original cash back. 

If you need to put money into every deal you will run out of money pretty quickly. By refinancing for enough to get your original cash back, then you can do it over and over.

Here is the catch. The house has to have increased in value enough so that the Loan to value is enough to get all the money back. Also after renovation you may need to wait 6 months or even a year to get "Cash Back"
It won't work perfectly on every deal. But it can be a big help in building your portfolio.