Pay Cash or Finance with BRRRR

[Alex Martinez]

Hi BP Community,

Can some BRRRR investors please share their thoughts on using cash vs financing when implementing this strategy? Please see my thought process below:

I haven't come across any posts on the using cash vs financing (leverage) comparison when planning to BRRRR rental properties. For this discussion, lets assume that financing would come through a construction loan from a mortgage lender/bank.

I've seen people argue that financing and limiting the amount you invest in the purchase and rehab of a property increases your ROI. However, the idea with BRRRR (when done correctly) is that you'll recover all or most of your invested capital at the refinance stage. This would give you an infinite or very high ROI since you have no/little money left in the deal. Of course, it's assumed that your running your numbers accounting for the mortgage at the refinance, budgeting for repairs/maintenance/vacancy/etc.

Paying cash would also allow you to save on closing costs when purchasing the property and give you some advantage when negotiating; you'd be coming with a cash offer and be able to close quickly appealing to motivated sellers. You're also not having to pay off a mortgage while the property is getting renovated.

Again, I'm looking for BRRRR investors to share their thoughts on using cash vs financing...

Thanks in advance!