BRRRR Questions: Low Down Payment Possible?

[Hunter Nelson]

Hello everyone!

Is it pragmatic to do a live-in-BRRRR, house-hack deal starting with a conventional or an FHA loan on a primary residence? I've heard people talk about getting a hard money lender for this strategy, but I'm wondering what alternatives exist. I'll have a friend renting from me for a year or two.

I've ordered the BRRRR book from BiggerPockets, and I've listened to BP Episode 327 where they do a BRRRR deep dive where David softly advised against this (@ 1:19:48 in BP 327) because it wasn't efficient, but I wanna learn more and see if it would be a good-enough way to get into real estate for someone in my position.

I'm estimating that by the time I'm ready to buy--November 2022--I'll have $70,000 (not including my emergency fund) in cash for everything: cosmetic-only renovations, initial down payment, closing costs, etc. Additionally, I'll be debt-free by then.

I currently live in a suburb outside of Denver with my parents where real estate is quite expensive for entry-level homes. So, I had the idea of BRRRRing with a low down payment (3-5%) on a fixer-upper single-family home that only needs cosmetic updates. I'd learn how to do the renovations myself. Once the renovations are done and the house appraises for more, I'd proceed with the cash-out-refinance process.

If I'm understanding all of this correctly, I should be able to get a new loan at 75-80% of the new appraised value. This would avoid me paying PMI, and I'd be living for almost or totally free when accounting for the rent.

Does this sound like a reasonable plan? Am I understanding how this works correctly?