Brrrring with convention loan

[Ethan Griffel]

Hello all! I am new to the world of real estate investing and like many of you have been spending the last few weeks/months reading and researching. I am very excited about the brrrr strategy and wanted to get others thoughts on brrrring a property without purchasing in full with cash. I know the big problem with this is these properties are generally distressed enough that getting financing on them can be difficult but what about in-between properties that maybe arent super distressed and can still be financed but still have good value add potential? Could this be a good area to focus or is it just to hard to add enough value to these properties and refinance the capital back out of it?

[Andrew Postell]

@Ethan Griffel so I want to answer your initial questions here if you don't mind:

what about in-between properties that maybe arent super distressed and can still be financed but still have good value add potential?  - So this won't really be the case. Let's take a general example of a home that has an ARV of $200k. Using the criteria you gave, you found this property and it's in financable shape initially. So now you just have to improve the property. Let's say you purchased it for $150k, it needs $40k to be worth $200k. So it sounds like you are spending $190k and getting a $200k house, right? But that wont' be the case because of closing costs. Even in that scenario you will still be spending about $200k just to purchase and rehab because of closing costs. And don't forget you had an initial down payment...let's assume 20%...so $30k down...then your $40k additional out of pocket...so a total of $80k to buy a $200k home? It's not worth it. You can just go buy a $200k home with ZERO rehab needed for 15% down. Even if you were to refinance that $200k home, well, that's more closing costs again, and you can only get 75% of the property value back in a cash out loan....so $150k...so you paid an additional $10k in closing costs to get $30k cash back? Again, not worth it. To make the numbers work in that scenario you would need to buy that property at $130k....and if I'm buying for $130k, then I'm not doing conventional/traditional financing. I'm using hard money because it will allow me to purchase with less out of pocket. And to answer that 2nd question...

Could this be a good area to focus or is it just to hard to add enough value to these properties and refinance the capital back out of it? - It's just too hard to do right now.

There are TONS of investors that focus on "off market" properties, using HML to BUY and REHAB and then traditional loans to REFINANCE and then repeat. We know that method works. It's still hard but it works. The other way is even harder though. If it were easy, anyone could do it. But focus on learning how to acquire off market properties and you will find a way to make that method work.

I hope all of this makes sense but feel free to ask anything else if you need.  Thanks!