Most of the time when people talk about BRRRRing properties, they say that buying all cash up front is the way to go in order to buy lower and close deals faster. I'm wondering why most people don't BRRRR with conventional loans with 20% down because to me it just seems like the better route to take because you can put less money in deals and still cash out refinance all your money, right?
You can definitely use conventional financing as long as the deal and numbers support it.
Most people buy cash with BRRRR due to the condition of the properties, time needed to close, etc.
Another reason is to avoid 2 sets of closing costs on both the purchase and the refinance.
@Nicholas Bohm 1 big reason is because the best BRRRR deals come from getting properties far under their potential. Part of being far under their potential is typically severe deferred maintenance. Conventional loans will not allow loans to be closed on properties with bad chipped paint, roof damage, wood rot, pest infestation, moldy carpets, broken windows, torn up bathrooms, etc etc. Hence the need for an all cash purchase, private money, hard money, or institutional financing that's designed for distressed investment properties. Once you have the property stabilized you can look into conventional options. However, even then, they have enough red tape and limitations to push people towards non qm, portfolio, commercial, etc. Conventional loans cap you at 10 financed properties, don't allow LLC vesting, require 6 months of title seasoning, require you to qualify based on income/dti, etc etc. They can still be a great tool for BRRRR deals (at least the first few) as long as you don't mind the seasoning, can qualify based on personal income (w/ two years history), and don't mind vesting in your personal name.