BRRRR cash vs. FHA/conventional

[Tyler Sokolis]

So I am in the middle of reading David Greene's BRRRR book, and I have a question about buying property with Cash vs buying with an FHA or conventional loan and then refinancing after rehabing and renting the property out.

Obviously cash gives you greater buying power (buying right is the most important part). 

And buying with an FHA loan (3.5% down) you would have to build enough equity to be able to leave 20-30% in the property without shelling out more money when you refinance.

Being a newbie investor, I am just curious if experienced BRRRR'ers find similar success when buying with cash and financing first and if anyone had any advice for the newbie who wanted to carve their path into REI through BRRRR investing.

Thanks!

FYI - located in Philadelphia, probably looking to BRRRR invest long distance, so any insight on best markets to do so would be awesome too!

[Joseph Cacciapaglia]

You are only allowed to use the FHA for owner occupied properties, so you won't be able to invest long distance. You also can't do a rehab with the standard FHA loan, the 203b. There is a 203k, but you should definitely talk to your lender about that before trying to weigh your options. It may have gotten better, but that program used to be a real pain to execute.

I find one of the easiest ways to start out, is to purchase an owner occupied 4 plex. I started with a duplex, but in hindsight the 4 units would have been a better choice. With owner occupied rates, you probably don't need a significant rehab to make the numbers work. I haven't been active in Philly for several years, but I think there are still parts of town where you could make this strategy work, especially if you're a little brave, or willing to cross the river to South Jersey.

I've worked with experienced investors that struggle with a long distance rehabs. If you're not checking in on your contractor's work regularly, who is? If you're going to try to execute the BRRRR strategy at a distance, you need to have significant contingency funds built into your model, and you should take quite a bit of time building a team as well. I'm sure some people have been able to find a property, and then put it together on the fly, but many have failed. I met with some savvy investors this week that flew into town just to meet with and potential contractors, managers, agents, and lenders. I think this is a prudent level of market due diligence. You can certainly do this over the phone, but it's really about your risk tolerance.