BRRRR w/bulk cash Investment, OR Standard 20%/30yr mortgage?

[Adam W.]

Hi there,

I joined this site a few days ago, but I have been mulling my first real estate investment for a long time.  My friend and I have narrowed a single-family condo in a complex located in an area we are sure is to appreciate.  The current property we are looking at should be obtainable for $300k (has room for $10k in improvements), and after-repair valuation could sit as high as $320k.  But that's not my issue.

I am interested in weighing the basic pros and cons of BRRRR vs buying the condo via mortgage with 20% down ($62k for loan amount of $248,000):

Note this would just be the first property - my friend and I would like to then pursue multifamily units for subsequent purchases ASAP.

Why would it make more sense to use BRRRR?  In this case I would likely take $155k out of my own pocket (or borrow against the equity I have in my current home), and source a private investment at say, 5%.  I would then look to re-finance if possible in as little as 6-12mos.

• In this scenario my calculations show pre-refi/post CF at $1,216/$189, but cash-on-cash ROI is a paltry 4.7%/2.2%.

Why would it make more sense to use the rental option, where I put down $62k assuming 4.25% over 30yrs?

• In this scenario I am showing monthly CF at $238 and Cash-on-Cash ROI at 4.43%
• Also I may have overestimated HOA, when I drop it to a more appropriate number the C-on-C ROI goes up to 8%.

Even without using the above example of the property I am looking at, why, in general would you choose 1 option over the other if starting out with a first property?

Thanks,

Adam

[Adam W.]

@Kevin Sobilo makes total sense.  And even if you're buying that property with 300k for cash, no renovation could raise the value enough to produce enough additional equity to take out at refinance.  Thanks.