Save up on money vs hard money loan for BRRR?

Question

Greetings,

I am a newly graduated MD who just joined the workforce with good W2 earning. I am very excited after recently joining this wonderful BP community and looking to start investing in multifamily rental properties for BRRR. In process of saving up for my first purchase.

My question revolves around possible options to start BRRR strategy as someone with good W2 income.

If I found a good deal, can and should I start early, by getting loan from hard money lender to finance my purchase and rehab cost, then REFI? (I believe this is called bridge loan?)

Is it possible to get a conventional loan with low down payment first, use own saved up cash for rehab the REFI with conventional loan?

Alternatively, should I just be patient and save for cash purchase and rehab?

Much appreciated.

Adri Jusczak · Answer

Congrats on getting started!

A bridge loan as a first timer, you'll most likely be seeing a really high interest rate. Starting with a conventional loan is possible, but if you are looking at a low down payment (10% or less), you'll have to really find ways to make up that value add to pull all your money back out with a refi (you'd need to create 30% equity). The other thing to consider, you'll be paying higher closing costs with a financed purchase twice. If you make a cash purchase work, your initial closing costs will be significantly less.

Another option would be to find a private money lender. This would look like a cash purchase, and you can come up with a plan to benefit the PM and yourself.

Erik Estrada · Answer

@Kheng Joe Lau Do you own a primary residence? If so, why not do a cash-out refi (assuming you built enough equity) and use those funds on a full-doc loan (also depending on down payment, and if your DTI doesn't exceed 50%) Alternatively you can do a DSCR loan that looks at rental income generated from the property rather than DTI. Those loans however, require higher down payments.

Kheng Joe Lau · Answer

No, I am renting so that is not an option. Thank you for the insight, those may be my future options down the road then :)

Kheng Joe Lau · Answer

Thank you for the insight! So sounds like with a low downpayment conventional loan for initial purchase I have to find a good deal.