BRRR - start with your own cash or private money?

[Jake Snavely]

Hi! I just recently closed on my very first two rental investment properties in Huntsville, AL. Both were turnkey, and both met and slightly exceeded the 1% rule. I now would like to BRRRR my next property but wanted to get some advice. I have cash to spend and am currently looking into the sub-$50,000 price point in North Alabama. Is it better to use your own cash for your first BRRRR? Any advantages to using private financing or seller financing? I’m uncertain because of you may not be able to refi for 12 months and don’t want to be stuck with a high interest rate for that long, but then you tie up your own money too. Any insight? Thank you so much!

[Mike Dorneman]

@Jake Snavely if you have the cash then I’d use it. Private money / hard money can be very expensive and if your floating around 1%, chances are the deal won’t be profitable with such a small margin. Not all banks require you to season the home for 12 months, I work with a very small local bank in my community and they have no seasonality requirement. I usually order the apapraisal they day after we close on the cash purchase when the job just requires some minor cosmetic fixes. The key here is creating forced appreciation. The bank I deal with loans 80% to value, so I need to make sure I’m increasing approx 20% (ARV) after renovation value, so I can BRRR my initial cash back out for the next deal.