BRRRR Strategy Refinance

A discussion about the BRRRR real estate investment strategy and its endless benefits. When we talk about real estate investing there is not a whole lot of other strategies that can be as powerful as BRRRR. Buy Rehab Rent Refinance Repeat is probably the end all be all of all types of investment strategies when it comes to real estate investing. It can exponentially contribute to your CAP rate and help you scale up very rapidly. Here is how it works. Let's imagine you start with $50k cash, you then find a property somewhere in Midwest or the South where prices are not astronomical like they are here in California. You purchase that property for $40k and put in $10k worth of rehab into it. Maybe you fix the flooring and the roof and do some landscaping and electrical. You turn the property to a shiny property that can be rented at market price, this should relatively be an easy task specially if you have contractors you trust and can work with efficiently. Next you find a tenant and collect that $500/$600 per month market rent. Once you have a solid tenant in place and the house looks great because of the rehab you put into to it you then go to a local bank and ask to refinance your property. In many cases banks allow you to refinance up to 75% of the property value if you own it out right and sometimes even up to 80%. The refinance loan is usually at around the same rate as a normal mortgage so that means you end up paying a relatively low interest rate and if you have purchased your property intelligently you should be already making a nice cash flow property at 15%-20% CAP rate. So now that you have take a loan on a portion of the value of the property you won't be making as much money on that 75% because some of it goes to the bank, but that's Ok because your CAP rate is now calculated based on the amount of equity or cash that you still have in the property which in this case is 25%. So if you do the numbers now the current CAP rate is higher than before. On top of that you have liquidity which you can use to purchase another property and repeat the cycle.