Overall the Brrrr strategy creates another bill. How do you pay the interest on the refinance/heloc and the mortgage for new investment and still make cash flow?
With the BRRR strategy, you purchase a property under value, do renovations to bring up to market value, and increase rents to market rent with the renovations.
When you cash out refinance, the first mortgage gets paid off. You can get an LTV of 75% for a SFR and an LTV of 70% for an LTV. If you purchase a property outright at market value the LTV is 80% for a SFR and 75% for a MFR.
So, the cash flow on the property should cover the mortgage.
Thanks a lot for the info. What if you use a heloc? Which is better in your opinion cash out refi or heloc?
Also. I’m listening to the audiobook by David Green on Brrrr. And what I take from it so far is that this strategy only works if you buy the property outright with cash under value. Will it still work if you finance first through conventional means with a house that would have some equity already in it that you could later use to fund another home?
@Rickey Davis I assume you are using some of the HELOC on a prior property for some of the purchase on the BRRRR property? If so, you will accrue some interest on that HELOC draw for the purchase. Keep paying that for a few months then replenish your HELOC money back when you do the refinance part of the BRRRR. In theory, you put that HELOC money back into your account to use again.
If not, and you mean getting a HELOC on your investment property as part of the refinance that might be tricky. Some banks will be hesitant to do a HELOC on investment property but there are definitely out there. I have done it on a property I had a lot of equity in though. Unless you really just blew it out of the water there may not be much wiggle room for a HELOC as your refinance on the back end.
The refinance should pay off the private loan (I assume that's what you're referring to). Then you use that private loan for a new investment which will generate it's own income.
@Rickey Davis there are tons of videos online that explain the process, several from BP as well. I also have a whole project on the BRRRR strategy that may help walk you through the numbers and processes in a real-world example. Check out my profile and you can find the series from there on Youtube.
Most banks won't lend on property that work (distressed, damaged, leaking roofs, etc) for the BRRRR strategy. That means you need cash to purchase or get lucky with a lender to start the journey. Cash is better. You don't pay interest during the rehab.
Finding reliable contractors that don't rip you off is a hurdle. I like to get a few contractor quotes and play it against each other. Another challenge is the REFI with a lender. The appraisal needs to come in close to the estimated ARV.
Thanks guys for this much needed info. I will check out your profile James to get a better understanding.