Can you still make the Brrrr method work with 20% down?

Question

Just bought our first home here in Huntsville Alabama, it was a foreclosure for 190k and I believe it will appraise for 290k once completely renovated. We are about 90% done but the lender said we will have to wait 3 more months to refinance. Once we refinance I’m planning on rolling money we made from the rehab  into the next property. But I’m very new this whole process. My question is can I make the Brrrr method work by rolling money from the first house into the second house putting 20% down and having cash from the refinance to rehab the second?

Chase Burkett · Answer

You guys are awesome thanks for the input! @Cody Barna

JD Martin · Answer

Not really. You might find a local bank that keeps the loan on their own books or a finance company, but anyone reselling the loan will have to comply with that rule.

Chase Burkett · Answer

Is there a way around waiting 6 months to refinance?@JD Martin

JD Martin · Answer

No. If you aren't selling the first house you're not paying taxes on the loan proceeds.

Chase Burkett · Answer

Thanks man, my next question would be when you do the refinance portion of the process for example. My second purchase I’m wanting to look for a home that is roughly 100k put 20% down so 20k and do 20k in rehab, will I have to pay taxes on the money pulled out of the first house since I want to use cash taken from the first houses refinance? Hopefully that makes since. @JD Martin

JD Martin · Answer

Yes, it can still work so long as your appraised value is high enough at the completion of the process and you haven't spent too heavily getting it ready:

190k, 20% down = 38k cash in the deal, 152k loand. 25k rehab, 290 ARV, 75% LTV = 217k loan.

217 - 152 = 65k. 38k+25k = 63k. So in theory you could recover all your cash. But I've left out closing costs, and maybe your rehab costs 35k, or maybe your appraisal is only 275.

You will be safer trying to do this kind of stuff if you assume you're going to have to leave some cash behind. You have to have a lot of freeboard to walk away with everything you spent.

Cody Barna · Answer

@Chase Burkett I don't see why you'd have an issue doing that, the biggest factor is the actual property you purchase. As long as you run the numbers correctly and leave room for additional expenses that will come up during the rehab, you should be able to successfully get your money out. At the end of the day it's hard to give you a definitive answer due to the amount of factors that could effect the outcome. I wish you the best of luck with everything!