Example of a typical BRRRR

After closing, the renovation (the first R of the BRRRR) will commence . The balance of the renovation cost will be paid in two subsequent draws of $12,500 each, totaling $25,000. The first draw will be paid once the ‘roughs’ are complete (roof, HVAC, electrical, plumbing, drywall). The second/final draw will be paid when the finish work is nearing completion or done.

Once complete, you will order an inspection by an independent 3rd party inspector. You will send that to us and we will develop a ‘punch list’ of corrections covering any major and/or safety related items. Once corrected, we will supply evidence demonstrating satisfactory completion.

We will then identify and install a qualified tenant (the second R – Rent).  This is guaranteed to happen no later than day #120.  If for any reason there is no tenant in place by day #120, you will be paid the expected rent by us until a qualified tenant is in place.

At or after 6 months from the initial closing (called a ‘seasoning period’),  you would undertake a cash-out refinance (the third R of the BRRRR).  At this point,  you are able to borrow conventionally up to 75% of the appraised value regardless of what your total cost may have been. 

The actual comps on this property are $120,000.  Presuming your appraisal comes in at that figure, this would deliver you a cash-out amount of $90.000 (75%) while your all-in cost was just $100,000. This would mean you only have $10,000 net out of pocket plus your closing costs and finance fees, or a total out of pocket of approximately $16,000.  Note:  Even before the refinance, you will enjoy positive cash flow at 8.4% annually (this is the Cap Rate on this particular property).  Once refinanced, you can expect cash-on-cash returns averaging 20% or more.

You then take the $90,000 generated by your cash-out refinance and repeat the whole process (the final R of the BRRRR).