BRRRR - Cash or Conventional Loan?

[Matt Vogt]

I’m doing the Brrrr method.

Have a house I’m interested in.

Purchase Price: 152k

Reno: 20k

ARV: 205k

I got preapproved for a conventional loan at 4.52% for the 152k

But I also have 100k in cash that I can access.

To keep it simple I’m just trying to decide if I should use the full conventional loan or if I should do the conventional loan and cash to purchase the house so I don’t have that big of a home loan?

[Nathan Maier]

Right away this deal is not looking like a knockout BRRRR. Your acquisition+rehab is 84% of your ARV. if you are off on your rehab or ARV estimates, you stand to leave a lot of cash in the deal. It sounds like you plan to do a loan at purchase, and a loan to refi. Two closing costs are going to eat in to your cash even more.

Now the bigger issue, and the reason why a BRRRR isn't going to work with your financing plan. If your numbers are exactly as you estimate that works out like this:

$100k personal loan

$72k conventional loan

After you rehab and rent you will refi at $205k and probably get a LTV of 75% which means $154k financed minus $72k for the initial conventional loan leaves $82k cash back. Subtract another $5k for two closing costs and you come up $27k short of paying your friend back. That is if your estimates are correct.

What is the expected rent?