Refinance question BRRRR

[Account Closed]

The BRRRR calls to refinance, but this will increase mortgage payments? So how is the increase amount factored in? Also can you take all your money out or do you have to leave at least 25% in the deal?

Current mortgage is 1200, refinance and now mortgage is 1500, so what do you do increase rents?

Thanks

[Jeff Copeland]

BRRRR usually calls for your to:

• Buy (with cash or hard money) a property in need of rehab.
• Renovate the property
• Rent the property
• Refinance the property - There is usually a 75% LTV requirement for a refi. So, looking back at the first two steps, your goal is to be "all in" at close to 75% ARV, so you pull all of your cash back out in the refi. (There is also often a 6-month seasoning period from your date of purchase, so plan accordingly)

Example: 

• Buy a home for $80k. 
• Spend $20k on rehab. 
• Now it appraises for $134k (after renovations). 
• At 75% of $134k, you do a cash out refinance for $100k (pulling out all of your initial $80k + $20k acquisition and rehab cost).
• Then the final R: Repeat

If you already own the home with long term financing in place, you're missing the "B" part of the strategy. 

If you have a lot of equity, you can certainly still do a cash out refi and use that money to acquire more properties. But only if it makes sense from a cash flow perspective. 

Also note, you may have much lower cash flow on Property 1 after the refi in this last scenario - but if your cash flow across both properties (the one you refinanced, and the one you bought with the proceeds) is more than Property 1 alone, then you're still coming out ahead, and owning two properties is always better than owning one.