Good evening BP,

So I hear a lot about the BRRRR strategy but it seems like all the stories I have heard are people using this strategy by purchasing the whole property.

Has anyone used the BRRRR strategy with only putting 20% down?

If so, can you provide a few details? 

My biggest dilemma is how do I make sure that when I refinance the house, after putting 20% down, my new mortgage payment won't be higher than the rent. 

You just have to run the numbers with different scenarios. It’s pretty easy to find out various mortgage payment amounts. Just do a worst case scenario to make sure the proposed rents would cover the mortgage. 

@Daniel Mendez the way you describe this is somewhat confusing. The reason most people purchase the property in cash or with a hard/private money lender is because it typically needs a fair amount of rehab, which will allow the BRRRR strategy to work in the way it's intended. Many times long term lenders don't like to finance those types of properties. So...you would use cash or short term financing to buy and renovate the property. Once you have it completed and a tenant in place then you work on the refinance which will allow you to cash flow the property the way it was intended.

If you put 20% down then you will have to come up with all the rehab funds as well.  Most investors don't want to tie up that much money into a property.  

@Daniel Mendez You could use a HML by putting in 20% down. Fix it up to add value, and rent it out to stabilize it then refinancing it with a conventional loan.

However, if you are using a conventional loan (20% down) to purchase a property, more than likely you're not able to add enough value, and refinance it later. Unless there's a decent appreciation in a few years. 

If there is appreciation, rents will go up as well. Your original loan will be paid down some, and the new loan will be re-amortized.  

@Daniel Mendez Just find a HML that doesn't require 20% down. I know tons of people that BRRRR-ed by doing 5% down on an HML loan with an LTV of 75%. Then they just did a rate and term refi and left the equivalent of 10% in the property. You have to do the math and make sure it is a good property but you should be doing that as soon as you look at any prospects. Use the calculators here on BP. That have one just for BRRRR.

Running numbers at worst case is the best way to make a BRRRR happen. If you run the numbers correctly no only can you buy the home using private/hard money and your 20% down but a lot of lenders will also finance the rehab. So once you rehab it then you will need to find a renter and then you can either seek out conventional financing, a short term hard money rental loan or long term hard money rental loan.

Going conventional will be cheaper but the thing people forget about is that conventional lender want to either qualify you based on your debts including the rental property which is difficult or want you to have at least 2 years experience with rental properties before they will use the rental income as qualifying income to help offset the new mortgage payment. So if initially you do not qualify for a conventional loan I would say go with a short term 2-3 year hard money rental loan and then refinance to conventional once you have the 2 years tax returns of rental income a conventional lender will require.