BRRRR - Financing Up Front

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When using the BRRRR Strategy, is it too risky to use a traditional loan with a 20% down payment instead of buying the property up front?

[Jesse Swagerty]

@Lucas Webb

I've done BRRR a few ways. Every strategy has advantages and disadvantages. I recommend finding a private lender that you can negotiate your own terms. We've nearly lost deals before trying to go conventional, just because the processing time is so long. But here's breakdown of pros and cons I've found:

Conventional loan: Pros: low interest, longest loan term, multiple reviews to ensure it’s a “good” deal. Cons: long closing period (risk losing the deal), highest upfront cost for services required by lender.

True Cash: Pros: lowest cost; Quickest/easiest close process; no maturity date. Cons: You’re making all the decisions without 2nd set of eyes, so you’d better know your sh*#. Need cash.

Hard money: Pros: Fast close; 2nd set of eyes on deal to ensure it’s good investment. Cons: highest interest; many upfront fees; short loan term; construction draws may require inspections to release funds.

Private Money: Pros: negotiate your own terms; Quick/Easy close if lender trusts you. Cons: Not everybody knows someone with that kind of cash; it’s their personal money so emotions are involved; unless they are a seasoned RE Investor, they are not a reliable 2nd set of eyes on the deal.

Note: regardless of strategy, I always recommend finding who you plan to use for refi up front and ask their advice. Every lender is different so you want to establish the relationship early and make sure you’re on the same page so there’s no surprises when it’s time to refi.