Hello bigger pockets,

Need suggestion to successfully implement brrrr method. We have a residential property which we own for more than 4 years and the loan is completely paid off. Now we are moving to a second resident and planning to rent our first one. We are planning to refinance after rent can use that money to buy our next investment property. My question:

1. Should we go for refinance or home equity loan and what’s the main difference and what’s best?

2. After refinance I doubt that our rental property could make only couple of hundred $$ in cash flow as we will have to pay hoa, mortgage payment, taxes, insurance and one month vacancy is considered too. Do you think it’s still a good deal?

3. How this will work in repeat process? Does it mean we will have to go back to bank and ask for loan for our 3rd, 4th.... property? How likely it is to refinanced from bank? Isn’t it like building more debts on you?

Your help will be really appreciated 

@farheed naveen

If you're going to refinance, do it now rather than wait to make it a rental.  Rates are better and you won't have to worry about your debt ratio.

Originally posted by @Stephanie P. :

@farheed naveen

If you're going to refinance, do it now rather than wait to make it a rental.  Rates are better and you won't have to worry about your debt ratio.

Thank you so Stephanie, I thought refinancing is easier once it’s rented because we have debt on our second property. What do you think?

This is our first residential property which we paid off. Do you think to refinance it will be considered our residential property to get better rates?

Your help is really appreciated 

@farheen

If you're still living in the first property and eventually you plan to maximize the leverage, then refinance it now rather than wait until you move and have limited loan to value and increased rate based on it being an investor/cash out loan. 

@Farheen Naveed

Originally posted by @Stephanie P. :

@farheen

If you're still living in the first property and eventually you plan to maximize the leverage, then refinance it now rather than wait until you move and have limited loan to value and increased rate based on it being an investor/cash out loan. 

@Farheen Naveed

Thank you so much 😊 

@Farheen Naveed The repeat aspect of BRRRR comes from buying a rental with cash, then refinancing it once you get a tenant, and using the cash out of the refi to purchase another one.

Since you have a house free and clear, your repeat would be in using the cash out refi of your primary residence turned rental to purchase another rental property.

You could consider refinancing your first home, setting the cash aside for future investment, then purchasing a new home with new financing. Then, move into the new home, rent out the former home, and then use the cash to buy another rental to get your BRRRR strategy started.

As to your question about your rental being a good deal, that depends upon the condition of the property.  Since you have been living there, I assume that you have been keeping up the maintenance on the property.  If you are generating a couple hundred dollars in cash flow each month, then the tenant is paying off your mortgage for you.  Also, you should set aside these funds as a reserve until you have a reasonable amount set aside for vacancy, maintenance, and capex.