Math behind zero money down BRRRR?

Question

I realize the strategy is to get as loans (private + hard money) your all in costs, then refi, pay them back and enjoy the cash flow.

Can someone give example numbers? Also, it makes sense only if you can get the refi of ARV equal or higher than what you borrowed otherwise you'd have to put your own money right?

As a foreign investor, if I can get only 65% LTV that makes this strategy irrelevant for me as I'd have to look for houses with Hugh upside on ARV

Kenneth Garrett · Answer

@Roy Gottesdiener

You have the concept correct, but it can still work even if you had money stuck in.  Here’s an example of a BRRRR I completed a while ago.

Purchase 95,000

Rehab $35,000

Took a 3/1 and converted it to a 4/2.

Rent 1620

Appraisal 165,000

I refinanced  at 80% LTV

I ended up with $5000 stuck in

Cash flow was $450/month or 5400 annually

My return was 100% in under 12 months.  100% CoC/ROI  after year one return is infinite.

Don’t think that the only way to BRRRR is no money stuck in.  There are other ways.  Let me  know if I can help further with this concept.

Kenneth Garrett · Answer

@Andy Green

Good luck with your investing career.  I see your in Ohio.  The advantage of the Midwest is you have purchase numbers that make it an easier entry into investing versus some west and east cost markets.  Educating your self is key.  The rest will come once your educated.

Good Luck.

Kenneth Garrett · Answer

@Kevin Reinell

No problem.  Thanks for asking.

Kevin Reinell · Answer

@Kenneth Garrett thanks for explaining, I figured the difference was closing costs but forgot about the private lender interest piece.

Kenneth Garrett · Answer

@Kevin Reinell

I had to cover private lender interest and closing costs.  While I was going through the refi process I had a tenant for 60 days so actual numbers would have been as follows:

Private Investor $6500

Closing cost 1500

Total Expenses 8000

Minus 3240 rental income

Actual number was 4760.

Kevin Reinell · Answer

@Andy Green I’m not sure I understand how you ended up with $5k stuck in deal in your example if you refinanced at 80% LTV?

Looks like all in for $130k and 80% LTV on appraisal should get you all back, no?

Lacy Green · Answer

Thank you for the reply!  We are excited to attend our first REIA meeting (given COVID doesn't prevent it) next month.  As new rookies, we are looking forward to networking and learning as much as we can over the next year!

Kenneth Garrett · Answer

@Andy Green

I understand the dilemma.  The BRRRR method works best with cash.  Most people don’t have the cash so they look for ways to acquire it.  Usually that leaves you with Hard Money or Private Money.  I networked and educated myself for a year before I started investing.  Attended many REIA meetings, meetups, seminars, etc.  there I had met a few private lenders.  That’s where I started using the BRRRR method.  I have always used private lenders, but it takes time to network and earn their trust.  My first investment I funded the rehab ($15,000), it went well.  Completed the project including the refinance in 4 months.  Next time they funded the purchase and the rehab.  I just kept repeating it. I would recommend start networking to connect with private lenders.

Lacy Green · Answer

Can I ask how you funded the original purchase?  I'm very interested in doing a BRRRR, but I am still getting hung up on the funding to get started.  We don't have it is the easy way to put it.  This may be better suited for a different thread so I don't hijack this one.  Thanks!

Roy Gottesdiener · Answer

@Kenneth Garrett thanks. Yes I can see the concept helps keeping your own capital invested to a minimum. I'll have to run numbers based on 65% LTV and see what's my return

Math behind zero money down BRRRR?

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