Seeking Clarification of the "B" Process in BRRRR

5 Replies

Hi All. First off, please pardon my naivety, as I am a complete newbie. Though I've listened to and read several examples of those successfully implementing the BRRRR strategy, there is a key component that I still can't seem to get complete clarity on.

Specifically- as I'm looking to purchase my first investment property in my area, I'm estimating that I will probably be looking at a purchase price of somewhere between $125-175k.  Given that I only have $30-40k in cash, I clearly am not able to purchase the property in cash on my own.  So here's my question(s).  Is my best strategy:  

A) Find an investor or HML to help me in the initial purchase of the property so that I can buy in cash?

B) Get a loan from a bank and simply put down 20%, and find another $5-10k for rehab? 

C) Accumulate more cash and possibly find a lower-priced property I'm able to purchase outright on my own

To me, it seems getting an initial loan from the bank goes against what can make the BRRRR strategy successful, but I'm not sure if I'm missing the concept?

Thanks in advance!

B likely won't work

The reason most BRRRRR's have that refinance component is because you're buying up front using hard money or cash because the properties are in condition where they won't qualify for traditional financing.

That's why you're able to obtain it presumably for a low enough price to be able to renovate it, get it stabilized with a renter, THEN refinance into a normal loan and theoretically pull out some cash on the loan as well. 

The dirty little secret often overlooked in the BRRRR strategy is that it is a capital intensive strategy. Capital is needed for the buy, for the rehab, and the holding costs.

@Jason Krivickas

I agree with @Natalie Kolodij and @Russell Brazil the buy side is usually with private or HML funds. Unless you have the cash it makes it more difficult but not impossible. The idea of the buy portion is buying the property at a big enough discount, which makes the original finance difficult and cost prohibitive.