I have a question about the BRRR strategy?

[Michael B.]

Do you have to buy, BRRR property out right (CASH). Or can I use 30% down payment and rehab an still be able to do a refi once values are up and rents are up?

[Andrew Postell]

@Michael B. You don't have to buy outright and you CERTAINLY don't need to use 30% down to buy either.  

Generally, we are targetting properties that are OFF MARKET using the BRRRR method. And more specifically, off market properties that are in a state of disrepair. That way, we can buy them for less and then rehab them for more. And there is a mathematical formula here - because our LENDING requires it to be this way.

For example, a normal Hard Money Lender (HML) will lend us 70%-75% of a property's After Repair Value (ARV). So if I can do both steps - the BUY and the REHAB - and 70%...then I come out of pocket $0....well, maybe I come out of pocket the closing costs but that's WAY less than 30%. I have to REFINANCE though and that's fine because that why that 3rd "R" is there. Doing all of this means I need some very specific skills though.

BRRRR SKILLS NEEDED

Generally speaking you will need several things to successfully complete a BRRRR:

1. ARV - being able to calculate the Value on your own (meaning, without the wholesaler telling you the value) is really important.
2. Repairs - You will likely need to know how to budget the repairs as well. Getting a contractor can be extremely frustrating especially if you need to make an offer without even looking at the property. How do you calculate repairs without a contractor? You may need to lean on other local real estate investors in the beginning. Or maybe even just focus on properties with a very light rehab?
3. Lenders - You will need a lender on your BUY step and on your REFINANCE step. And I would HIGHLY recommend to read this article I wrote for Bigger Pockets on how to find good lenders that you can find HERE. If they are good, they should be absolutely definitive on rate, terms, costs, etc. Trust me, many lenders will tell you they can do this...but it's very rare to find. When I first started BRRRR'ing my properties lenders would tell me "That's illegal"....it's not, they just didn't know anything about it. Find good lenders. It's really important.
4. Finding Properties - and this is the absolute hardest step of anything right now. So network like crazy and find some good resources. It's going to be hard...but if it were easy then anyone could do it.

Anyway, I hope this helps in some way.  Feel free to post if you need anything else.  Thanks!