Rental Property Investor · Member since 2019 · 2 posts · 0 votes
Other than having to pay closing costs twice and also not being able to potentially buy a property for a greater discount up front, why would using a conventional loan be a bad idea for a BRRRR, as compared to hard money?
Consider a scenario in which a property is currently rented with a lease in place for another 6 months. I wouldn't be able to renovate the property until it is vacant, and it is currently in decent enough condition that the bank would approve conventional financing. The current lease still allows for a little cash flow ($200 or less). Considering a purchase with conventional financing (either 20% down or 15% down with PMI) and then in 6 months do the minor reno (8k or less) and refinance with 30% greater ARV over purchase price.
With HML interest rates being 10-12%, can I just compare that amount of interest against the cost of having to pay closing costs twice? What other costs am I failing to consider?
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
5y
@Natalie Siedschlag some properties that make the best BRRRs are in such poor condition that conventional financing is not available. You are correct that it's possible - but how would putting in just $8K get you such a big boost in the ARV?
Investor · Leominster Ma · Member since 2019 · 305 posts · 162 votes
5y
Conventional Financing needs the home to be in livable condition when you begin. These properties normally sell at a price that's higher then what can be BRRR in my area as they are currently cash flowing. You are now fighting other BRRR investors and the buy and hold investor that doesn't fix anything up. I find the more people involved the more the price will be driven up. The other hard side is a traditional conventional loan will not give you money for the repairs. This would all have to come out of pocket. The only traditional loan types I know that give repair costs (besides construction loans) are loans such as FHA 203k. This would work good if you are house hacking as a requirement is its your primary residents. They are also a giant PITA if you dont have a lender and an agent that knows them and how to get through the loopholes.