How Much Cash Do I Need To Put Into My First BRRRR and How Much Should Be Financed?

[Lucas Schlund]

I have been having a very hard time getting a straight answer to this question, probably because im having a hard time wording it right, so just bear with me here.

For my first deal, I plan on BRRRR'ing out of it to build my portfolio faster. I will give some example numbers, and please let me know what you all think.

Perfect scenario example :

Buy a property for 80k, put 25k into rehab, and it appraises for 150k. After I would refinance and roll it into the next deal, like all BRRRR's work.

Lets say I find a deal and the numbers run to be exactly like the situation above. How much cash should I plan on pulling out of my own bank account for this?

What I mean by this, is should I use a lender to cover 90% of the purchase and 100% of the rehab for max leverage, or should I put more equity into it. Should I have a lender cover 90% of the purchase price and 0% of the rehab? 

You guys get the point, should I be looking to leverage other peoples money as much as possible, or use more of my own cash in the deal? 

The main reason I'm asking this, is to understand how much cash I need to save up in reserves before pulling the trigger on a deal like this?

Thank you to all that respond and your input.

[Ty Coutts]

Hello Lucas, 

Your question about financing a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy is important for understanding how much cash you'll need upfront and how to leverage financing effectively. Let's break it down with your example and explore the financing options.

Max Leverage (Using a Lender for 90% Purchase and 100% Rehab):

Purchase Loan: 90% of $80,000 = $72,000

Rehab Loan: 100% of $25,000 = $25,000

Total Loan Amount: $97,000

Your Cash Investment:

Down Payment: 10% of $80,000 = $8,000
Closing Costs and Fees: Estimate around 3-5% of the purchase price = $2,400 - $4,000
Holding Costs: Property taxes, insurance, utilities, and interest during rehab (estimate $1,000 - $3,000)
Contingency Fund: 10-15% of rehab costs = $2,500 - $3,750
Total Cash Needed: $8,000 (down payment) + $2,400 - $4,000 (closing costs) + $1,000 - $3,000 (holding costs) + $2,500 - $3,750 (contingency) = $13,900 - $18,750

Moderate Leverage (Using a Lender for 90% Purchase and 0% Rehab):

Purchase Loan: 90% of $80,000 = $72,000

Your Cash Investment:

Down Payment: 10% of $80,000 = $8,000
Rehab Costs: $25,000
Closing Costs and Fees: Estimate around 3-5% of the purchase price = $2,400 - $4,000
Holding Costs: Property taxes, insurance, utilities, and interest during rehab (estimate $1,000 - $3,000)
Contingency Fund: 10-15% of rehab costs = $2,500 - $3,750

Higher Equity (Using a Lender for Less than 90% Purchase):

If you decide to put more equity into the deal by using less leverage, you will need more cash upfront, but your loan amount and, subsequently, your interest payments will be lower.