Is it better to brrr or just get a new conventional loan

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Is it better to brrr or just get a new conventional loan

Alisha Destulien
Member since 2023 · 1 post · 0 votes

I started in this investing game last year with my husband. We purchased a house and flipped it to get that cash in the beginning.  We then purchased a house for $30k cash and rehabbed it and rented it.  It is now worth $65k. We are looking to expand our portfolio and buy more rentals.  Would you suggest to do a brrr method to get the cash out and buy another house or would you go conventional and put 20% down!?  We have been approved for a conventional loan, but trying to figure out which is the best way to go!   Thank you 

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Bryce JamisonPro Member
Rental Property Investor · Mebane, NC · Member since 2015 · 493 posts · 439 votes
2y

There's no right or wrong answer. It depends on your goals and risk tolerance, well and the numbers.

You'll definitely be able to scale faster by utilizing leverage via the BRRR method, but you'll decrease the monthly cashflow from this property and you'll now have a loan to pay every month. If you go this route ensure you have a beefy emergency fund for when your renter stops paying rent, trashes your unit, there's a capital expense, or some life event prevents you and your husband from bringing in income.

Since you'll only be able to pull out 80% of the home value doing this you'll also want to determine if it makes sense to pay the fees to only get out 52K. I'm going to guess with today's interest rates once you see what your monthly payment would be vs the rent you're bringing in you may not want to move forward with this option.

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  • Bryce JamisonPro Member
    Rental Property Investor · Mebane, NC · Member since 2015 · 493 posts · 439 votes
    2y

    There's no right or wrong answer. It depends on your goals and risk tolerance, well and the numbers.

    You'll definitely be able to scale faster by utilizing leverage via the BRRR method, but you'll decrease the monthly cashflow from this property and you'll now have a loan to pay every month. If you go this route ensure you have a beefy emergency fund for when your renter stops paying rent, trashes your unit, there's a capital expense, or some life event prevents you and your husband from bringing in income.

    Since you'll only be able to pull out 80% of the home value doing this you'll also want to determine if it makes sense to pay the fees to only get out 52K. I'm going to guess with today's interest rates once you see what your monthly payment would be vs the rent you're bringing in you may not want to move forward with this option.

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  • Dan NelsonBusiness Member
    Real Estate Broker · Chicago and Kansas City · Member since 2016 · 87 posts · 68 votes
    2y

    Hi Dan,

    1. It's great to hear about your successful start in the real estate! 

    The choice may depend on your specific investment goals and risk tolerance. You might even consider combining both strategies, using BRRR for some properties and conventional loans for others. Given your successful experience flipping and renting a property, I recommend using the BRRR method to extract cash and purchase additional rental properties. This approach can help you grow your portfolio more rapidly by recycling your initial investment. Good luck and keep us updated on your progress!

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  • Preston DeanBusiness Member
    Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
    2y
    Quote from @Alisha Destulien:

    I started in this investing game last year with my husband. We purchased a house and flipped it to get that cash in the beginning.  We then purchased a house for $30k cash and rehabbed it and rented it.  It is now worth $65k. We are looking to expand our portfolio and buy more rentals.  Would you suggest to do a brrr method to get the cash out and buy another house or would you go conventional and put 20% down!?  We have been approved for a conventional loan, but trying to figure out which is the best way to go!   Thank you 


    If you plan on doing the BRRRR method on the current property you have, remember that the bank will only give you 75-80% LTV. So at 65k ARV & 80% LTV you can only take out $52K

    That sounds like it would be enough to continue to play the BRRRR game in my opinion

    Borrowing cash is expensive right now at 7.5-8%

    Unless you need some capital in the bank, if I am in your shoes I would do the BRRRR method again and skip the 20% down.

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