Cash Flow After the Refi in BRRRR
I feel like I'm missing something regarding how to retain positive cash flow after the Refinance part of BRRRR. Say you buy a property and after your all in costs for purchase, rehab, etc, it cash flows a few hundred dollars per month. If I did everything right the property is worth substantially more. Now when I do a 75% LTV cash out refi on the new value of the property my mortgage payment is obviously much higher than the original payment, which takes away my positive cash flow... Am I missing something or is the answer as simple as I can only cash out as much as the rent/positive cash flow allows?
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#5 Medium-Term Rentals Contributor
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- Youngstown, OH
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#5 Medium-Term Rentals Contributor
- Investor
- Youngstown, OH
Look at it this way: You have a $100k property that cash flows $100 a month and the payment is $1,000 a month. You improve it and it appraises for $225k. Your payment goes up to $1,100 a month. You take that $125k of equity and buy 2 more properties that each cash flow $150.
Your payment has gone up $100 a month, but your cash flow has gone up $200 a month. That increased payment is covered by the rent on the new asset.