Hi can anyone explain to me how the refi strategy works and has it helped you guys and how can I go by doing it ?
Its actually really simple man!!
Step one - go to top right corner of the page.
Step two - click the search icon.
Step three - read thousands upon thousands of pages of material already discussed on this subject.
Step four - after you have an idea of what is what and have a specific question - go ahead and post.
Not sure if you are asking specifically about the refi step or BRRRR as a whole.
Here is a start: https://www.biggerpockets.com/...
@Lakeitha Henry Brrrr stands for Buy, rehab, rent, refinance, and repeat.
The strategy is to buy a property in need of repairs under market value, rehab the property increasing the value and giving you equity, rent out the property to bring cashflow, refi the deal to pull your money out and use it on another deal, then you repeat the process.
@Bill Plymouth Okay great and how long do I need to rent it out for ? Is it a good idea to do this with rent to own ? Or just renting it out and not selling it for a while thanks for your feedback
@Lakeitha Henry I’m gonna be straight up, I haven’t done my first deal yet. I’m still working towards it. I know a lot of things in theory, but not application. With that being said, I believe the objective of this strategy to hold the property long term. I think 5-7 years would be a solid amount of time to hold the property. It allows time for appreciation and loan pay down. Honestly, you could hold the property forever. A good play would be to sell and wrap up the cash into a 10-31 exchange and buy a higher cash flowing property.
If you are renting to own a property you plan to Brrrr, make sure you are getting it for under market value. The strategy only works if you can add a decent amount of equity with the rehab. Otherwise, you can’t pull the equity out and put it into another property.
@Bill Plymouth Okay great and May I ask what’s a 10-31 rule? Also is there a formula to make sure you are purchasing and rehabbing the property correctly so you can pull off the equity and how do we calculate the equity in the property after we rehab ? Thank you so much
A 10-31 exchange is a tax form that protects you from capital gains tax(tax on your profit from selling a property) as long as you are buying a similar property. There are more rules and regulations to that. I would give it a google. I can't explain everything about the process confidently.
In order to calculate your equity, you have to find out the ARV (after repair value) of the property. Here's an example:
Property A, in its current condition, is worth $50,000. It needs $40,000 worth of repairs. Your all in price (purchase+repairs) is 90k. After your repairs, Property A is worth 130k. 130k-90k=40k. You have 40k of equity in the property.
The rule/equation that flippers use is called the 70% rule. The 70% rule says that you purchase a property for 70% of its ARV minus the repair costs. The example above is the 70% rule in play.
The refinance part works in a couple of ways, depending on how you initially finance the property.
If you initially pay cash for the property;
You can cash out after the rehab is completed with delayed financing. This goes based on the current market value, but you are limited to your purchase price plus closing costs. So if you are paying cash initially here is a strategy that will help you get more cash back out;
If you include on your closing statements (which vary state to state - HUD-1/ALTA statement ) the renovation costs - and have them charged at closing...... This renovation cost now becomes an initial closing cost and can be included with the max that you are able to pull out prior to 6 months.
If you are initially using financing - either hard money or a renovation loan;
Than you can cash out based on appraised value at 6 months with no limitation of your initial purchase.
The LTV for an investment property is the same for delayed financing and traditional cash out financing. A single family or unit is 75% and a multi-family is 70%.
You missed an "R"