Chicago BRRRR

[Patrick Howe]

I have been doing some research on BRRRR (Buy, Rehab, Rent, ReFi, Repeat) and looking to speak with any experienced investors who use the BRRRR method in Chicago. I am mostly focused on the north side of the city. Also looking to connect with any hard money lenders/agents/wholesalers willing to work with a relatively new investor.

     Any advice/help is always appreciated

[John Kesner]

@Sonny H.

@Patrick Howe

Sonny, from your example here is how I see the process working for you.

Purchase house $220K

20% down $44K

Rehab $90K

Payment on $176 for 30 yrs @ 5% = $945

(Add in your taxes and insurance, plus other holding costs like utilities or HOA fees)

For this example lets say your total holding costs are $1500/mth and your rehab and seasoning time is 6 months

6 x $1500 = $9000

Total investment = $90k + $44K + $9K = $143K

Refi and get a new loan at the new appraised value of $450K,  ($450K x .75 = New loan $337,500) that pays off your old loan of $176K leaving you with $161,500. 

So you get back all of your inital investment $161,500 - $143K = $18,500 profit.

Now you new loan payment would be about (30 yr at 5% on $337,500) $1812, plus taxes, insurance, etc.

Hopefully you can now rent the property for enough to cashflow ($2200/mth +) and you have a nice stabilized rental property that you have no money invested in (in fact you have already taken $18,500 in profit out of it). Essentially, you got paid to do all this and own a property with 25% equity (loan to value of 75%).

You can now take your original investment of $44K + your profit of $18,500 and go buy another property and do it all over again.

If you can pull this off it would a home run!! 

If you add a hard money loan in for the rehab the cost would go up dramatically

$90K @10% interest only makes a payment of $700 + 3 points (3% x $176K) = $5280 (typical hard money terms) 

So total hard money costs would be 700 x 6 + 5280 = $9480

This approach would eat up some of your profit but and add some risk but the numbers still work. 

Sounds like a good deal to me. Just work hard to hit those numbers!