BRRRR Method With Cash

[Nicholas Munford]

So I've been doing research on BRRRR and most of the people that do it take out 2 loans (to buy and then to refinance). And I was wondering if using cash to buy and then doing the cash out refinance and then taking out a loan would be a better return and easier in the long run, then using debt the entire time?

Let me know what you think!

[Steve Vaughan]

Originally posted by @Nicholas Munford:

So I've been doing research on BRRRR and most of the people that do it take out 2 loans (to buy and then to refinance). And I was wondering if using cash to buy and then doing the cash out refinance and then taking out a loan would be a better return and easier in the long run, then using debt the entire time?

Let me know what you think!

Definitely, Nicholas. Use cash at the buy if available to you. Save the extra finance costs and pain. There won't be an appraisal, so be sure of your value.

My last one only had closing costs of $417.  I had to get insurance ($500) of course, but I was amazed. Whenever I finance conventionally it costs at least $2800 net extra.  Why do it twice, right?

[Kat Rathell]

I believe buying with cash is superior when you are buying a wholesale deal and time is of the essence. Wholesalers don’t do financing ;). 

[Steve Vaughan]

Originally posted by @Nicholas Munford:

So I've been doing research on BRRRR and most of the people that do it take out 2 loans (to buy and then to refinance). And I was wondering if using cash to buy and then doing the cash out refinance and then taking out a loan would be a better return and easier in the long run, then using debt the entire time?

Let me know what you think!

Definitely, Nicholas. Use cash at the buy if available to you. Save the extra finance costs and pain. There won't be an appraisal, so be sure of your value.

My last one only had closing costs of $417.  I had to get insurance ($500) of course, but I was amazed. Whenever I finance conventionally it costs at least $2800 net extra.  Why do it twice, right?

[Jason D.]

@Nicholas Munford Yes, using cash is cheaper so better return, and easier because you dont have to deal with banks.

[Nicholas Munford]

@Steve Vaughan that's crazy didn't know closing cost could be that much

[Steve Vaughan]

Originally posted by @Nicholas Munford:

@Steve Vaughan that's crazy didn't know closing cost could be that much

The $2800 net is pretty cheap.  By the time you have to pay pre-paids like interest, 14 months insurance, 12 months property taxes, lenders insurance, appraisal, etc it will easily add up to $5000 for a $100k property in most cases.

[Carl Crump]

Hello,

I agree with the statements above.  Cash gives you more power and less fees.  initial coc will be lower but you are

getting most of your investment back when you refi.  

Another thing to think about is getting multiple properties using loans instead of paying cash for one.

This is the cash vs. leverage discussion.  There are arguments for both sides certainly depending on your 

risk tolerance and strategy.  I still say you can never go wrong with cash if you have it...

[Nicholas Munford]

@Steve Vaughan WOW! This is something they don't talk about in the books or the podcast. Thanks for letting me know

[Steve Vaughan]

Originally posted by @Nicholas Munford:

@Steve Vaughan WOW! This is something they don't talk about in the books or the podcast. Thanks for letting me know

 Nope, not sexy enough to also mention seasoning and rip-off fees.  BRRSRORR doesn't have a ring to it.  They're 'forgetting' about the $11k in costs when you finance twice... oh, and never show up in the forums to clear it up either.

[Nicholas Munford]

@Carl Crump I've thought of this. Can you explain how leverage works in this situation a little more in depth please.

[Nicholas Munford]

@Steve Vaughan haha thanks. I definitely have a lot more research I need to do before buying my first property!

[Carl Crump]

Originally posted by @Nicholas Munford:

@Carl Crump I've thought of this. Can you explain how leverage works in this situation a little more in depth please.

 @Nicholas Munford  Leverage in this case is simply stretching your money and using it to get multiple properties.

For example if you have $50K cash and wanted to get rentals.  You can buy one for $50k.  Or you could use leverageand put 20% down 3-4 $50k properties.

Of course there are risks to getting more properties at once as well as advantages. You will have more cash flow coming in potentially and multiple properties in your portfolio. Also more units to make up for possible vacancy. However you will have 3-4 investments with closing costs and more potential problems... If you do your homework and run scenarios her on BP leverage could be a good option. It is definitely riskier and maybe not as good for a first investment. Like I said before you can never go wrong with cash especially with the BRRRR method.

Remember also if you are getting the properties at good prices you are getting a big chunk or all your investment back when you refinance.  Hope that helps...

[Nicholas Munford]

@Carl Crump thanks a lot. That really cleared things up for me. From what you said, I'll probably hold out on obtaining that many properties at once considering I don't know how to manage just one property yet.

[Andrew Syrios]

You can absolutely use cash up front and will in fact save money on holding costs and loan fees. That being said, you've got to have the money to begin with and some banks are hesitant to give cash out loans (but many are willing to do so). 

[Nick Rutkowski]

@Nicholas Munford

Done that to my first house. It’s possible to work.

[Andrew Caldieraro]

Using cash was significantly fewer headaches. For me, it was fairly frustrating getting all of the paperwork to the bank that they needed. Then I could not get a loan until I had equifax fix my incorrect date of birth that they had on file - I have no idea how this happens in the first place. Then, I always question whether a bank is adding on additional fees, etc. On a flip note, being highly leveraged can ramp up your business quicker, or it can make you go bankrupt quicker.

[Ayne C.]

@Nicholas Munford

I'm doing mine with cash. I believe it makes you go slower than you could've if you'd just bought a few leveraged units at the same time. But that's a good thing because you need time to learn all the lessons that present themselves.

[Daniel Kong]

@Nicholas Munford absolutely cash is the way to go. But say you only have 50k cash. Now you are limited to a 30k property, maybe 15k rehab. You will need some reserves. If the rehab/refi (closing costs) ends up going over to 25k what do u do?

Instead, If you took out a loan with 20k of your 50k, got say, a 50k house- now you have 30k worth of funds for your rehab/refi as well as a higher priced house.

Loans just give you more options.

[Lionel Li]

Buying with cash can also give you an edge on the offering side. I was able to close within 2 weeks which I believe allowed my offers to be the more attractive to sellers. When you throw a motivated seller into the equation sometimes it's even at a pretty steep discount. If you pair that with saving on 1 mortgage CC, it will make a huge difference on your total initial investment. The less you're able to spend the more you can purchase at the wedge of the market where flippers and even the traditional rental buyers can't even touch. Having that wedge can sometimes mean buying or not buying a deal in a market that's picking up.

That's how I initially purchased my 3 rentals and BRRR'd the first 2 so far. Steve's mention about knowing your appraised value should be emphasized..you have to be sure of it or you'll have a pretty disappointing BRRR.

[Nicholas Munford]

@Lionel Li there's no way to get an appraisal without getting a loan? Can i just call an appraiser and get it like that?

[Lesley Resnick]

At this point in your life and journey, I would recommend trying to use Fannie Mae money.  By that I mean house hack.  You can buy a duplex or larger, live in one side and rent the other. 

You could also take a 203(k) loan and buy a value add house and do work on it.  These loans have a one year owner occupied requirement.  

The loans are going to require w2 income.  Depending on where you are financially, the state often sponsors programs to help first time home buyers. 

It will be easier to go from Fannie Mae money to hard money than the other way.

[Will C.]

@Nicholas Munford

Well your not holding two loans at the same time. The refi pays off the 1st. Yes, buying cash initially gives more buying power and usually you get better deals. That is the ideal way if you have the capital.

[John Kwon]

@Nicholas Munford I think it would be hard to call it "no cash down" real estate if you need all that cash.

But, we try to do cash buy on all properties. It is so fast and hassle free. If you can do it, then I would recommend it as long as your risk tolerance to put cash in one basket.

[Frank Wong]

Hi Nicholas,

If you have the cash this is the best way of investing if you want a stress free high net investment.  Cash allows you to take a variable out of investing and limit your risk.  No mortgage payment = the Ultimate Holding Power.  Economy goes bad, cool whatever.  Rents drop, cool whatever I'll lower mine first and let's keep lowering it till someone loses.   I know I won't lose that game.

@Steve Vaughan also mentioned the savings in fees.  So true.   I don't have to pay all those lender fees and lenders title insurance. 

What I like most about buying cash.  It makes my life stress free and I can focus my attention on getting results for my clients which is the most important thing to me.  This allows me more time to stack more cash and to buy my next investment cash.  See how this works?  Just keep repeating this process.  

[Shane Ward]

I don't get why you all are saying that leverage is more risky than cash. The cash is something you worked at saving or set aside somehow. If you screw up and loose your cash it's gone. If you make a mistake leveraging you can work out paying it down etc. I feel much better keeping my cash close, leveraging each deal and letting tenants pay off the loans. The other thing no one is mentioning is that there are some safeguards built into getting loans that you dont get going it alone. That alone could cost you those savings you get with cash. HML's wont loan on a bad deal etc. JMHO

[John Kwon]

@Shane Ward I completely agree with you. There is a risk of losing (or not getting your money out by BRRRR) if the property is not worth as much or ARV is lower than expected.

If you do your due diligence and the number works, then cash buy is a great option. But putting all your eggs in on basket can be a risky proposition - especially if you don't have enough reserve.