Thread by @BrunoBuysHouses

The BRRRR method is great, but leaves a lot of equity 'trapped' in the deal

Here's a strategy that you can use to do a BRRR with very little money and tap into that equity shortly after without paying taxes on your gains

THREAD🧵 (warning, long) #REtwit

1. Let's say you find an off-market four-unit building that needs work

You see similar 4units in good condition selling for 500k in the same area

You walk through it and decide it needs 50k worth of work, so you make an offer for 70% of ARV minus rehab which equals $300k

2. Offer accepted - now you get a hard money loan for the entire project so you only need to come out of pocket a few thousand bucks for closing costs and float some carrying costs throughout

You hire trustworthy laborers and spend some nights there painting to save some money

3. Now you have $350k of debt on the property (which covered purchase and rehab) and you've spent a few thousand of your own dollars

The property is worth 500k now, so you rent it out to tenants who you screen extremely well, and since the units are new you get top-dollar rents

4. Now you exit your high-interest, hard money loan using a cash-out refinance for 75% of the appraised value

The great thing about these loans is that they don't care much about your income or credit

It's all about if the asset can generate income to cover the payments

5. So now you get an appraisal done that comes in at 500k, and you get a new 30yr loan for 75% of that, which comes out to $375k

Your HM loan of 350k gets paid off at closing, and the proceeds ($25k extra) goes towards closing costs, and the rest you keep - now check this out

6. Here's the awesome part

At this point, you've done a simple BRRR

You have a 4unit cash flowing modestly, and paying itself down

You also have 125k of equity in this deal, which you may think the only way you can tap into is by selling and paying taxes on the gains...

7. Fast forward one year...

You've been collecting some cashflow and paying down a tiny bit of principle

You also may have gained a year's worth of appreciation (let's say 3%)

Now you have a 4unit worth 515k and you owe 370k so you have 145k of equity

8. Since you rented it out for a year, your 4plex is now eligible for a 1031 exchange!

Now you can sell it for a profit of 145k minus closing costs, so let's say 120k net, and transfer that equity into another property, deferring any taxes you would have paid!

9. Now you use your 120k cash as a huge down payment into another value-add deal

If you find even a half-decent deal to deploy this capital into, you're golden - here's why

10. Let's say you bought a small duplex for 200k, so you only have a loan of 80k on it

Let's say you do a tiny bit of work and it's worth 235k

Now you do one more cashout refi, and get a new loan for 75% of 235k which is about 175k

11. You payoff your 80k loan, pay some closing costs, and you're left with about 85k-90k which is yours to keep - tax deferred

PLUS you still have two units cash-flowing for you, and you barely needed to come out of pocket any money throughout the entire process

12. This strategy can be kind of hard to follow, but imagine doing three or four BRRR's, holding them all for a year, and doing a 1031 to transfer all of that equity into a deal

You could buy a property in cash and immediately refi to unlock your equity

13. Or you could use that huge chunk of cash as a down payment on a big multi, 10-20+ units, and set yourself up for life

Either way, it's hard to go wrong with this method

If you got value out of this, I would certainly appreciate a retweet here:

https://twitter.com/BrunoBuysHouses/status/1619681138665979904