Questions about BRRRRR method
Hey BP world!
Reaching out to gain some clarity to on the BRRRR method and house flipping in general. Where my confusion comes in is in the debt to income portion of these deals.
Let's say I buy my first home around $80,000 (foreclosed) and put $10,000 into it and then I rent it and go to refinance it. Let's just say that it appraises with comps around $130,000. I've read that most banks will cash you out for the value of up to 70% of the home, so $91,000 in this case. Assuming I put $8000 down on the home that would mean I get cash out at ($91,000-$72,000) = $19,000.
So really I'm back to what I started with...roughly a $9000 down payment and $10000 for renovations. To me it seems like I'm not making money. But I guess it's the fact that I know own a home and someone is paying the mortgage and I am having some cashflow from it.
But when I go to purchase my next property, how does the debt to income ration work? Since the house I bought is providing a small positive cashflow, does it basically negate the mortgages affect on my debt to income ratio? I'm sorry if that doesn't make sense. I can clarify anything if it is confusing.
And how do you handle the risk of taking on more mortgages and let's say that all my tenants left so that would leave me with 3 or so mortgages to pay. What if my salary isn't high enough to cover that?