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Updated almost 6 years ago on . Most recent reply
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BRRRR - Why use own cash for house and rehab v.s. 20% financing
Hey Everyone. I've been on here for a bit and have been to some RE meetups the past six months. I'm looking to get my feet wet and buy some SFH rental properties out of state (I live in Los Angeles). I spoke with an investor that does the BRRRR method 30-45 minutes outside of Madison, Wisconsin where he says that you can buy a fixer upper SFH 3 bed/1.5 bath for around $40K and rehab it for another $20K.
He states that similar homes appraise for $80K after Rehab and rent out for $1,100-1200 monthly. Option 1- if I have $80K cash to invest in Real Estate, what is the advantage of using my own cash of $60K to buy 1 property and rehab it then rent it out rather than Option 2 -Buy four or five $60-70K properties and only have to put down $15K (20%) or so down payment for each property.
Having 4 or 5 houses would be better than having all of my cash tied into just one house, correct? I know that I can refinance and get my money back out of that one house which i paid cash with if it appraises higher than what I bought it for but can someone explain why I should do option 1 instead of option 2. My ultimate goal is to maximize cash flow on properties to eventually replace my W-2 sales job. Any help/advice would be appreciated.
Most Popular Reply
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Two of the main reasons why BRRRR investors use cash over financing the purchase:
1) Often the circumstances and/or condition of these wholesale houses don't qualify for conventional financing.
2) Cash avoids two sets of closing costs due to the acquisition loan in addition to the refinance loan after the rehab.
If you execute BRRRR correctly you can have far more than 4-5 houses since you recycle capital.