BRRRR
Buy, rehab, rent, refinance, repeat. Force appreciation with a renovation, then refinance to pull your cash back out for the next deal.
How it makes money
The renovation raises the value. A cash-out refinance at a percentage of the after-repair value returns some or all of your cash, and the tenant pays the new loan.
The numbers to watch
- Cash left in the deal
- What you put in minus what the refinance returns. The goal is as close to $0 as possible.
- Cash flow after refinance
- Rent minus every expense on the new, larger loan. The refinance can turn a good deal cash-flow negative.
- Return after refinance
- A year of cash flow over the cash left in. Infinite when all your cash comes back out.
- Max price to get all your cash back
- The highest purchase price at which the refinance returns every dollar you put in.
What to check before you buy
- After-repair value
- The refinance is based on it, so be conservative.
- Lender terms
- Loan-to-value, seasoning period and rate decide how much comes back.
- Rent
- It has to cover the bigger loan after the refinance.
- Timeline
- Holding costs add up until the refinance closes.
Risks
- Appraisal
- A low appraisal leaves more cash stuck in the deal.
- Rates
- Higher rates at refinance mean a smaller loan or weaker cash flow.
- Rehab overruns
- More cash in, same refinance out.
- Leverage
- Pulling equity out leaves less cushion if values fall.
Run the numbers on your next deal
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More strategies: Long-term rentals · Short-term rentals · Fix & flip