Down Payment

A down payment is the part of a purchase price paid in cash rather than borrowed. On a BRRRR it is the gap a hard money lender leaves, typically 10 to 15% of price, plus the rehab and soft costs that also come from your pocket. Recovering that cash at the refinance is the point of the strategy.

On the default deal the lender funds 90% of the $150,000 purchase, so the down payment proper is $15,000. Add $3,000 of closing costs, $2,700 of points, the $40,000 rehab and about $10,100 of interest and holding, and the total cash invested is $70,825.

Compare that with a turnkey purchase of the same $260,000 property at 25% down: $65,000 plus closing, about $72,800, none of which comes back. The BRRRR investor puts in a similar amount up front and gets $54,150 of it returned. The down payment on a BRRRR is temporary; on a buy and hold it is permanent.

Further reading: Down Payment on Wikipedia.