The BRRRR method
How do I explain to my significant other how we would get the forced appreciation in the BRRRR Method to cover the down payment in the refinance?
I am having trouble explaining where that money comes from. "How do we get that money if we don't sell it?"
@Daegan Brady BRRRR does not owrk for most properties and most deals.
If you do it right ther IS NO Down Payment for the refinance. You buy at a discount for a fixer upper property. The idea is you only buy properties that are worth substantialy more when fixed up that the money you put into them. Then you can refiannce and get ALL your money back.
However like I said most deals are not good enough to do this.
When you buy a property it either appreciates naturally or you renovate it to speed up the process. When you refinance you do not need any cash because the refinance includes all of the fee's into the loan. When you refinance you will be taking out cash on the appreciation/equity at 75% LTV unless its a primary then you can go up to 90% CLTV.
If you buy a home for example and convert a garage to a bedroom or build additional square footage multiple bedrooms/bathrooms/bigger home GLA. You are going to increase the value of the home and equity. You can use the expected ARV to calculate the cash out on the refinance at a 75% LTV for an investment.
Example if you buy a home for $125K and renovate the home and its then worth $300K that's the ARV. 75% of $300K is $225,000.00 Which means you turned your $125K plus (x) in renovation costs into equity/cash you can pull out on the refinance. On that example if you purchased for $125K and used $50K in renovations -Your into it for $175K so $225K-$175K leaves you with $50K to go out and buy another rental. These are hypothetical numbers but the refinance is where you pull out money on the ARV to use for another purchase.
Just keep in mind when you refinance there is no money needed you just pay for an appraisal the fee's are financed into the new loan.
You could let them know you're buying your fix & flip at a discount from the retail market. After you rehab the home you'll have a new after repair value that should be significantly higher than the price you purchased the property. You'll have equity in the home since you purchased it below market value and can do a cash out refi. 3-6 months 70% ARV and 6+ months its 75%.