Are you curious about how the BRRRR investment strategy works for real estate investors?
What is BRRRR? Simply put, it means Buy, Rehab, Rent, Refinance, Repeat. With know-how and the right skills, you can buy homes quickly, increase their value by rehabbing, gain cash flow by renting, then refinance to gain a better financial position to proceed with the next BRRRR. More details in article below on this great strategy.
Is BRRRR for you? You have to wonder if this investing strategy fits you and your plans for portfolio growth. Learn more about what BRRRR consists of, the benefits, and what to consider before taking this on.
The key is to buy under-valued fix-up property—real deals–in a desirable rental area. Once the property is improved, you’ve immediately increased its value for a better refi position. In the meantime, tenants are paying your mortgage and maintenance costs.
Best of all, you build equity from the get-go because you purchased the right property and quickly increased its value through the rehab process. Now you’re ready to refinance and add another BRRRR property.
My personal BRRRR experience came early. I learned firsthand about the BRRRR strategy early in my real estate life when we found a condemned triplex. My husband at the time and I just had to come up with $50,000 to buy and fix the property. We got a home equity loan to fund the fixup and took the leap. A lot of sweat equity and maxing credit cards helped us get the fix-up done, not without obstacles like stolen furnaces. We rented the triplex for cash flow plus refinancing this property allowed us to do the whole process over again. That was the beginning of over 100 units in Minneapolis. That’s BRRRR!
What are the benefits of BRRRR. Generally, you will pay less for properties using this method. Why? Because you’re buying a property that needs work. And because you’re investing less to get the deal you’ll see a higher ROI than other property investments. One of the best parts of BRRRR is you’ve built equity right away, and with renovation you’re creating a property that’s worth a lot more. You could even be improving the property class—from C or B maybe to A. What’s more, your tenants are paying down the mortgage so your equity continues to grow quickly. With renovation behind you, maintenance costs will be less going forward.
What to consider before BRRRR-ing. First and foremost, get advice from an experienced Realtor, like us at the Encore Investment Team, or investing advisor. It’s critical to know your numbers and accurately calculate the after-repair value (ARV) as you plan your rehab budget and schedule.
To get started with this portfolio building process you need a down payment and rehab funds for that first property. If you don’t have the cash, carefully consider the type and cost of the loan you’ll need. Hard money and private funding will have higher interest, whereas using a home equity loan gives you initial funding at a lower cost.
Renovating houses is no simple matter. Get your rehab team in place before you start and be ready for surprises and set-backs. Budgeting the rehab is critical as is figuring ARV.
And, the ARV calculation needs to be right for the property to appraise as you planned and to allow you to move on to the next BRRRR property.
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