Can you BRRRR with financing, or just hard money/cash?

[Josiah Sia]

Starting out with REI and the BRRRR process seems great. For someone with minimal connections and little capital ($50k) it will be difficult to do a complete BRRRR project. Almost everything I've read or listened to in the BP podcasts and forums showcase doing the BRRRR strategy with hard money loans or cash.

Is it possible to do the BRRRR method with financing to start the process off (buy), then refinancing after the seasoning period? Say doing a conventional 5% DP loan to purchase a property, then doing a refinance after the appraisal after the rehab? Is there any major negative or downsides to doing it this way? Or am I missing something and this wouldn't really work?

[Bob Daniels]

The problem is that your typical brrrr home is in very rough shape and needs to be almost completely redone. This makes it difficult to get a bank to give you a loan since no bank wants to lend money on a piece of $#!* house. There are programs such as the FHA 203k loan, which lets you purchase a fixer upper and include the cost of rehab in the loan, but as with other FHA loans you must intend to live there which can cause problems depending what you wanted to do with the house. Also you can't do any of the repair work yourself and must hire a contractor which defeats most of the benefits of a live in flip. Finally the interest rates on the 203k loan will likely be roughly a full % point higher than a normal mortgage interest rate.

You can talk to your local credit unions and see what programs they offer.  Theoretically since they are holding onto the loan instead of reselling it they can do whatever they want, its just a matter of convincing them that this is a good enough deal.  Although often times they will want you to have some sort of a proven track record when it comes to deals such as this.