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!

[Alexander Felice]

Prudent investors look at both ROI and Cash-on-Cash ROI. Both are important and in many ways total ROI is a lot more important than COC

On this website you'll often find people who ignore ROI and only look at COC, this seems to be common with beginners with very few resources and they want to maximize them under any condition of risk. Buying a lousy deal can become profitable on paper with enough debt, but it doesn't always make for prudent investing. 

My personal reference is a mix of much of what you asked and using the advantage of each. I use CASH to buy because it gives me negotiating leverage and speed of transaction. Then I put long term fixed debt on the property but not before creating at least 25% equity, so my total loan is 100% of my funds but only 75% LTV. This allows me a high ROI, infinite COCROI, and the advantage of using cash as you mentioned.