BRRRR with a 203k loan?

[BJ Swing]

I'm researching a way to jump in to my expensive market. A regular 2 bedroom / 1 bath starter home will go for around $250,000 and larger houses can climb in to the $300's to low $400s depending on the area. Every now and again some serious rehab houses come on the market. One I'm looking at now is in an upcoming and popular area. It needs a total gut rehab. It can probably sell now for $140,000. The magic number in my area for total home rehabs is $100,000. I don't know yet if this is near to the true cost but I'm using it as an estimate. To do this type of work, I would choose to use a 203k or HomeStyle loan at 3.5 or 5% down.

With everything fresh, comps would put this house around $300,000 ARV. Let's assume with I'm able to get the whole purchase and renovation done for a loan of $240,000. Can I turn around and cash refinance out 70-80% LTV at $300,000? How much cash should I have on hand for a project like this?

Thanks for any advise!

[Matthew Porcaro]

@BJ Swing Hi BJ - Are you planning to house hack? Or just get a single family rental under your belt? If you want to rent it, you need to be living in it in some aspect. What I did was I searched for legal small multi family properties. I did a BRRRR with a 203k. I picked the house up for 270, put 100 into it, and refinanced our a year later and now rent both units out for 2k per month cash flow. What’s great about a 203k is you can wrap the rehab coat into the mortgage. It’s a higher monthly payment, but if you can float it during construction, it makes your cash on cash return very high.