Doing a cash buy with a rehab loan - BRRR strategy advice

[Rueben Pacheco]

Newbie here!

So I’m not at the point yet to potentially buy and renovate with my own cash. I was thinking about purchasing the house with cash and then getting a rehab loan. Afterwards refinance and then pay back the rehab loan.

Is this smart or should I find a hard money lender or try another avenue?

Thank you for any advice you can offer!

Rueben

[Rob Beeman]

@Rueben Pacheco  Totally agree with the comment of having ample cash! Most business fail due to under-capitalization, and real estate related business are no different. Cash reserves are key, regardless of the business model (flipping or holding).

If you are going to borrower money - local money will be cheaper than non-local. Local banks or credit unions are good resources if they offer financing on properties in need of updates and can supply the loan in the name of an entity (LLC), hopefully keeping it off your credit report. If local money isn't available (not all will lend to an LLC, or on properties in need of work), then non-local may be an option, however will typically cost more and may have larger minimum loan amounts.

Don't be surprised to find out that the lender wants to loan on portions of the purchase as well as the rehab (improvements). This makes them feel more comfortable that the asset WILL be improved, as that is part of their equation when determining the loan figures. Using other people's money (either in place of your or along with yours) serves the purpose of leverage. Leverage can make it possible to: do more projects; do larger - more costly projects; keep more of your cash for reserves; all of the above. Leverage can be a powerful tool, however it comes at a cost that needs to be considered.