Paying 2X the Closing costs on a BRRRR

6 Replies

Hello everyone!

I've spent the last few days thinking on the best way to articulate this question- so I hope it makes sense.

When using the BRRRR strategy, I've read that using a Conventional Loan for the purchase isn't efficient because you'd have to pay closing costs twice for the Refi.

What is the difference if using a HML for the purchase?

Hey Cullen,

You can use a conventional loan for the initial purchase of a BRRRR but the thing about conventional loans is they take awhile to close (30-45 days), can be hard to get approved for properties with major rehab and require 20% down (unless you're an owner occupant).

For the reasons above most folks will use a HML or PML for the initial purchase. The closing costs are negligible in either case.

Does that make sense? 

@Cameron Tope Thank you. It makes sense and is refreshing to hear because it fits a situation I'm facing.

I recently made an offer on a bank owned property (way under list price) that has already been updated. Without having a formal inspection, my rehab would only be to purchase a kitchen appliance package (maybe a washer and dryer just because). Its one of those situations that could be too good to be true. Thank you for helping me understand that portion of the strategy a bit better.

@Cullen Waller , to add to Cameron's comment, when you say costs, are you talking about the cash needed to close, or the actual costs associated with closing a conventional loan vs hard money vs cash purchase.

In general, a hard money loan will be higher loan to value, so the cash to close is low, But the costs associated with the loan are typically higher.

Conventional loans will require more cash to close (higher down payment) but generally have lower costs associated with the loan.

Cash, clearly, requires the most cash to close, but your fees are tied to recording, title work, etc.

The loan costs generally are not a major cost, as Cameron notes, but they can add several thousands to the overall cost of the project.

I am currently under contract for a SFH for purchase at 137k ($95 PSF) and I plan to put in about 30k max of my own cash for repairs. I will be doing a Live in BRRRR-- its not a total rehab, but needs major major updates. I am going with a 3% down conventional loan.

I plan on living in this and putting a lot of sweat equity into the property and then do a cash out refinance after 6 months at 80% LTV to recoup most (if not all) of my money. My lender said the closing costs are included in the 80% LTV cash out. I will live in it for the required amount of time to satisfy the loan requirements and then move out to fully lease the property as a buy and hold investment.