BRRR Question about Financing

3 Replies

This question might sound like it has an easy answer but I don't understand. Please bear with me.

Here is the scenario:

I purchase a house for $100k, put 20% down. I renovate the property, it is now worth 150k. 

When I go to re finance, I have about 70k worth of equity in the property. 

If I understand correctly, I still have to barrow against the property to gain access to that 50k worth of created equity from the remodel correct? 

Or am I misunderstanding the process? 

Because if I cannot re finance and collect cash, why would I refinance after doing the work on the property? Or when you refinance, you take out a loan on the new amount that the house is worth and pay yourself back the re hab costs? 

Thank you. 

When you BRRRR, you are trying to get all of or as much of your money back as possible. So yes, the goal is to take out a new loan in the amount of the after repair value and the equity is cashed out, which should hopefully cover the rehab and down payment.

@Justin Wilcox , in your example, you didn't say how much you spent on rehabbing it. Which is important, because your refinancing Lender will likely only let you borrow 70% against their post-rehab Appraisal. In this case, let's agree: $150k. Therefore, they'd lend you $105k.

If your $100k outlay included the rehab, then you'd be good to go for getting all your own money back (plus payout any original loan), so you could Repeat. 

That's how BRRRR is supposed to pan out.

If on the other hand you spent another $50k on top of the $100k to rehab it, oops!

That means you haven't gained any equity. Same as just paying $150k market value.

Hope that helps you discern what properties might make good BRRRR candidates. All the best...

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