Brrrr Strategy( Need help)

2 Replies

I am in the process of reading the brrrr strategy book and I'm having trouble understanding how a person still has equity after they refinance. Lets say I get private money to fund a deal which is purchased for $75,000 including rehab cost. After I get A tenant in the deal and then refinance 4 to 6 months later. To my understanding they're going to give me a mortgage on the property and a 75% loan to value most likely. let's say the property after it is rehabbed is worth $120,000 and they let me pull out $90,000. If I still have to pay the private money lender then that only leaves me with $20,000 Worth of equity. I must be confused. Even if I use my own money and I got the bank to refinance and they gave me the money back since I put in a new mortgage on the house the money that the bank gave me for the refinance I have to pay back. Correct? I don't see how you can go into the next deal with a house that has a bunch of equity and cash flowing if you have to pay back the mortgage that the bank gave you on the refinance. I'm sorry for my ignorance I might just be confused. Any help would be great.

@Aaron Thompson

You're about there.  I'll start over though.

You want to be comparing how much YOU have into the deal (CASH invested on purchase, plus rehab money) to the amount of money you'll get BACK when refinancing after the fact.

This effectively gives you an idea of what impact the deal will have on your cash position after you get through the project.  

Originally posted by @Aaron Thompson :

I am in the process of reading the brrrr strategy book and I'm having trouble understanding how a person still has equity after they refinance. Lets say I get private money to fund a deal which is purchased for $75,000 including rehab cost. After I get A tenant in the deal and then refinance 4 to 6 months later. To my understanding they're going to give me a mortgage on the property and a 75% loan to value most likely. let's say the property after it is rehabbed is worth $120,000 and they let me pull out $90,000. If I still have to pay the private money lender then that only leaves me with $20,000 Worth of equity. I must be confused. Even if I use my own money and I got the bank to refinance and they gave me the money back since I put in a new mortgage on the house the money that the bank gave me for the refinance I have to pay back. Correct? I don't see how you can go into the next deal with a house that has a bunch of equity and cash flowing if you have to pay back the mortgage that the bank gave you on the refinance. I'm sorry for my ignorance I might just be confused. Any help would be great.

 So, using your example, if you use $0 of your own money to purchase the house, because you funded the deal with private money, and then you rehab>rent>refinance you would have $15K cash in hand and your private money lender would have been paid in full.  You would be paying a 90K mortgage payment (which should be better terms then the private money deal) and you would have 15k in hand to reinvest in the future.  Now, do another similar deal on house #2 with the same private money lender... now you have $30k to play with.  If the properties cash flow, then you are not paying for that money, your tenants are.  

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