Hard Money VS Traditional Financing (BRRR)

4 Replies

Hello Bigger Pockets Team,

I've just hit the 1 year mark on my first deal. I house hacked a 4-plex, and it turned out great! I recently moved to a new city, and I'm currently ready for my next deal (BRRR), but I'm having trouble figuring out which direction I should take. I acquired FHA mortgage through a large lender, but I have also been told that hard money may be a better option. Any advice on hard money vs traditional financing when it comes to BRRR? Any help would be appreciated.

Thank You. 

@Trevonte Mosby

Other than an "investment" conventional loan, all conforming residential loans will require owner occupation.

In general sort of, you are supposed to only have one FHA loan at a time...

A hml is useful when the property is in poor condition and wouldn't qualify for any other conforming loan product, such as a FHA. However, they are by design short term loans of 6 or 12 months and require non-owner occupation. So, ultimately you either have to sell (i.e. flip) or refinance into a conventional loan to hold the property long term.

Its really not much of a choice. Either way, you need to wind up with a long term loan to do a brrrr. One major aspect YOU have to decide is whether you are doing owner-occupation. Also, how distressed is this property? These are some of the major factors that drive which loan product you are eligible to use, or perhaps the converse, which deals you should be looking for to use a particular loan product.

Good luck.

@Trevonte Mosby

The beauty of moving to a new city is the ability to use FHA again (or its conventional counterpart which is cheaper). I would recommend against using hard money when you've got conventional money as low as it is and because your situation dictates you need another owner occupied property (not conducive to hard money).

Stephanie