Explain BRRR math in detail

[Jordan Deaver]

Please Explain in detail with math how it is a good thing to brrr a property with a large equity position or completely owned. I have initial numbers if you want 120,000 purchase price 25,000 remodel 200,000 ARV 100% equity

please, I understand that you can capture the appreciatuon on another property but is that all? How does this compound? Worth losing cash flow to reinvest? Please explain all the math and process to me. In return I can share my lease forms and rental apps if you want. 

[Nicholas L.]

@Jordan Deaver

if you buy a property for 120 and rehab for 25 and the ARV is 200, you can then do a cash out refinance, and get 70-75% of the ARV out. so, that's 140-150. there are also lots of fees... these often get overlooked, but they are non-trivial.  on a cash out refi they could be 5-15K, so that comes out of the proceeds.  new investors are always surprised by the fees...

and again, what is a "cash out refinance"?  it's just a loan.  a new loan.  so, if you paid all in cash for the property, you're paying yourself back.  if you borrowed to buy it, you're paying the first lender back.

note: if your ARV were 200 and you only found a lender willing to do 70%, with 10k closing costs, you'd only get 140 - 10 = 130k out, and you would have "money left in the deal," as they say.

and, this is easier said than done.  typically a distressed property is going to need more than a 25K rehab to double its value.  BRRRRs aren't growing on trees right now.

make sense?

finally, worth losing cash flow to get your capital back?  that's up to you.  in my book yes but YMMV.