The BRRRR Method of property investing has been popular with those who want to expand their real estate investing portfolio. It’s known for being an effective strategy to use leverage to expand your investment business within just a few years.
I see property investors use this strategy regularly. I can see the value in this type of investment, though I teach my students not to invest in rental properties with methods like this until they’ve secured at least $100K in savings.
What is the BRRRR Method?
Essentially, BRRRR is an acronym for:
- Buy
- Repair
- Rent
- Refinance
- Repeat
Let’s look at each section a little closer.
- Buy – The first step in the BRRRR method is to seek out a property that is under market value. Keep in mind that you’ll be looking for a property that needs repairs, as you’re going to be taking some money and fixing it up. Also, look for a super good deal because the better the deal, the easier it will be to refinance down the road. This leads to the next step.
- Repair – Because you purchase a home that needs repairs, you’ve got to have the money and resources to move forward and fix it up. Be careful here, because you don’t want to go overboard and spend more money than necessary, but you do want to provide a nice home for your future tenants. Be sure you crunch the numbers to get a good estimate of how much money you may need for renovation. Keep in mind you may be able to start showing the property to potential tenants before it’s completed. Just be sure it’s in good enough shape where they can see the value of what they’ll be getting.
- Rent – As soon as you’re done with the repairs, it’s time to get a good tenant in there. This assures you cash flow right away.
- Refinance – Plenty of people head to their local bank to refinance, as many of them have great introductory rates. It’s also a great idea to get to know your local banker for future ventures. The refinance process may take about four to six weeks, so you can potentially get the ball rolling before you have renters in there. However, be sure that you have rent coming in before you close on the loan, so you can use that rent as income.
Usually, you can refinance at 75 percent of the appraised value of the property. An appraiser will do an appraisal and then the lender will lend you about 75 percent of the total, so you can cash out.
- Repeat – This step is pretty clear. You simply repeat the process, using your short-term funds to purchase another property.
Benefits of Using the BRRRR Strategy
The BRRRR strategy is beneficial because you may only need a small amount of cash and your ROI can be very good. You can also start building some equity right out of the gate when you start rehabbing the property. The BRRR method can be a powerful way to increase wealth via real estate investing, however, it does require you to accurately crunch the numbers, plan, and find excellent deals. But those who are willing to learn the strategy and execute it wisely can go on to really build their investing portfolio well.
If you are looking to move in this direction with your business the above is not a bad strategy at all, however I still encourage my students to go with the methods I have taught as it tends to bring in more money with less work.
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