BRRRR: Hard money vs wait to save for a cash purchase?

Question

Hi everyone. I've been lurking here for a while, reading and educating myself, and I'm about 1-2 years away from being able to pull the trigger and get started with real estate. I'm looking to get started by investing in multifamily residential properties, focusing on a BRRR model. Ultimately, I'd like to use my initial acquisitions to move into commercial real estate through a 1031, and continue to build my portfolio in that way. The more I read, the more excited I am to begin. As such, I've been debating whether or not I should look into using hard money to finance my BRRRR projects vs wait another year or so and make an all cash purchase. I understand that using hard money will be more expensive in the short term, but I'm weighing that against the opportunity cost of waiting to make an all cash purchase, and I was hoping you guys would be able to weigh in and and share your thoughts. Thanks in advance for any replies, really great community that's been formed here.

Joe Villeneuve · Answer

So, why don't you look in a different market?

A man goes to the Doctor and tells the Doctor, "It hurts when I raise my arm".  The Doctor says, "So don't raise your arm".

Dennis M. · Answer

@Joe Villeneuve

Thank you for pointing that out. Well received. My plan would still be to BRRRR the cash projects. Deals that only need minimal rehab seem a little harder to come by in the area I'm looking to start in (Worcester, MA). The Worcester market can be highly variable between blocks, and a lot of the properties that are more or less "rent-ready" with numbers that look good seem to be in more "war zone" type areas, which I'd like to avoid as best I can.

Joe Villeneuve · Answer

You were correct right up to when you said,

"...and focusing on the deal, rather than the financing, is a better way of thinking about it...".

The financing on every property/deal is integral to making the deal.  The better the financing, the better the deal.  There is not one or the other priority.  They go hand in hand

Joe Villeneuve · Answer

Are still going to BRRRR the cash projects?  Are you planning on buying 100% cash?  Have you considered buying 5 times as many properties using 20% DP/cash for each?

Dennis M. · Answer

Good point. I suppose some of my reservations stem from trying to mitigate the downside risk as much as possible, considering it'll be my first foray into real estate, and there will be a little more room for error by minimizing expenses before the units are rented. But I suppose a good deal is a good deal, and focusing on the deal, rather than the financing, is a better way of thinking about it (of course I'm focusing on the quality of the deal regardless).

David M. · Answer

@Dennis Murphy

Well, if you can make money now even with hml costs, why not?  It won’t stop or slow down your build up of cash right?  You will just have more cash faster... right?

BRRRR: Hard money vs wait to save for a cash purchase?

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