Initial cash BRRR or hard money

[Jake Ingram]

Hey y’all,

Exploring my first BRRRR, and curious about financing strategies of initial cash purchase vs HML. Say initial purchase plus rehab, $100k, and that's 70% of ARV. If you had the funds available, with some cushion, is it advisable to skip the HML and $7-12k cost, and purchase in cash? With BRRRR numbers a bit harder these days, it seems that would be a decent option to explore for total ROI and CoC return if you aren't planning to take on more than 1 project at a time.

I understand Rehab and projects can go sideways, but looking to hear from others that have, or have not gone that route. 

Thanks!

[Anderson S.]

Both strategies have their pros and cons. Purchasing cash can be advantageous if you have the funds available with a cushion. It allows you to avoid the $7-12k cost associated with hard money loans (HML), which can improve your total ROI and cash-on-cash return. Additionally, cash purchases can often be quicker and simpler, avoiding the complexities and timelines associated with HML.

However, using HML can preserve your cash reserves for other opportunities and emergencies. Even with the cost, leveraging HML might enable you to take on additional projects concurrently, increasing your overall return. It's important to weigh the opportunity cost of tying up your cash in a single project versus the potential benefits of leveraging financing.

Ultimately, it depends on your risk tolerance and investment strategy. If you prefer to maintain liquidity and have the potential to handle multiple projects, HML might be the way to go.