Should I use conventional financing or use BRRRR on this deal?

2 Replies

I have a potential deal on the table but I'm not sure whether to use conventional financing or to try to execute a BRRRR strategy. The condo costs 150k and its a bank repo/foreclosure. All of the comparable homes in the neighborhood are at around 185k to 200k but none have updates. I'm estimating that we could do all the updates that we need to make for around 15k. That puts us all in for about 165k with the hope that we could refi at 200k. I could come up with the traditional 20% down and finance the repairs myself or I can use hard money to finance the whole project and then recoup most of my money back during the refi process. What would you do?

Don't mistake the type of financing you use with the strategy. You can BRRRR by using conventional financing both to acquire the property and to refinance it. Or you can use any number of other financing methods for your acquisition and rehab and there are a variety of options for the cash out refi portion as well.

But to your question as to whether or not that works as a BRRRR:

150k plus closing costs with conventional financing puts you at roughly 159k. Plus 15k in rehab means you're all in at 174k. If the ARV is 200k, with conventional financing you'll be able to borrow 150k, minus closing costs on that loan is more like 146k. Long story short you're leaving about 30k of your capital in the deal without factoring in rental income and will have created about 26k of equity.

Those are the numbers, only you can decide if they work for your personal goals.

@DeAndre Wheeler Purchase-wise, I would lock in cheap money right now and avoid 2 sets of closing costs as the deal can't handle it (you are creating some equity, but not a lot). What are the rents? Does this even make sense as a rental? Also, crunch your scenario in the BRRRR calculator and see how you like the numbers. Here is an article to help you spot if a deal works.