BRRRR VS Renovation loans

[Denver Chavez]

Hello BP Community,

I recently purchased a single family property with a conventional loan that I'm currently developing (In the planning stage) into a 3-4 unit property. I'm trying to decide if I should fund the renovation up front with my own money, then essentially refinance and BRRRR the property on the back end to pay myself back. The other option I have is to refinance the property now with a renovation loan and basically use the ARV of the property to fund the renovation. This would mean I would be paying off a bigger loan based on the amount of money I borrow for the renovation. Sort of a BRRRR in reverse. If any one has any experience doing either of these and can shed some light on which would be the better long term play, I would really appreciate it. The only difference I can see is that the Reno loan would be a higher interest rate for the time being, but I would think I could refinance in the near future assuming rates come down. The benefit is that I wouldn't have to use my own money for the renovation.

Thank you!

[Denver Chavez]

Quote from @Andrew Postell:

@Denver Chavez ok, we will skip the "make sure your comps, zoning, permits, etc" discussion and go straight to the loan side.

Having a 30 year fixed rate 4 unit property should still hold you pretty close to your current housing expense.  Meaning, you may not actually cash flow since you are occupying one of the units...but the other 3 units should offset your new mortgage payment that your CURRENT mortgage payment would be pretty close to the NEW mortgage payment even though the interest rate is higher currently.  So get prequalified for the loan first, analyze your "net housing expense" and see what that looks like.  You can do 90% of this without having to commit to a loan or anything.  The numbers will show you the direction to go.

Hope all of that makes sense. 

 Thank you Andrew, 

Yeah that makes a lot of sense. I'm going through the prequal process right now so that should give me some clarity once its completed.