Buy – Rehab – Rent – Refinance – Repeat
What is BRRRRR
BRRRR is a real estate investment strategy that stands for “Buy, Rehab, Rent, Refinance, Repeat.” It is a way to build wealth through real estate without having to put a lot of your own money down.
The BRRRR method involves the following steps:
- Buy a property below market value in need of some TLC.
- Rehab or repair the property to make it rent-ready.
- Rent the property out to tenants.
- Refinance the property to get cash out to equal most or all of your initial investment.
- Repeat the process with another property potentially using the same amount of money as your initial investment.
The Benefits of the BRRRR Real Estate Investment Strategy:
- Little to no money down: You can purchase a property with little to no money down, with a fix and flip loan that will cover the closing costs.
- Quick cash flow: Once the property is rented out, you will start generating cash flow immediately. This cash flow can be used to pay the mortgage, invest in more properties, or simply enjoy your monthly profit.
- Equity: After the rehab you build instant equity. As the property appreciates in value, you will build additional equity. This equity can be used to borrow more money for future investments while leaving equity in the property and the cash flow will make the payments as well as a monthly profit.
- Tax benefits: Rental properties can provide significant tax benefits, such as depreciation, mortgage interest and other tax deductions for a business.
- Passive income: Once the property is rented out, it can generate passive income for you. This means that you can collect rent without having to actively manage the property.
Risks Associated with the BRRRR Real Estate Investment Strategy:
- Renovation costs: You must choose the right property and the right contractor and maybe even a project manager. This is to ensure renovation costs are in line with the budget and the rehab period is as short as possible. Time is money.
- Tenant risk: There is always the risk that tenants will not pay rent or will damage the property. This risk can be reduced by thoroughly screening the tenants in advance and having good property management.
- Market risk: The real estate market can be volatile, so it is important to invest in properties that will have an acceptable after repair value. Your property should also be in a market were rents and tenants are stable.
Overall, the BRRRR Real Estate Investment Strategy can be a very effective way to build wealth through real estate. However, it is important to do your research and understand the risks involved before you get started.
Tips for Real Estate Investors Considering the BRRRR Real Estate Investment Strategy: Build Your Team
- Find a good property manager: A good property manager can help you find tenants, collect rent, and manage the property on a day-to-day basis. This will free up your time so that you can focus on finding new investment properties.
- Do your research – Have a Good Realtor: Before you buy a property, it is important to do your research and make sure that it is a good investment.
- This includes knowing the location and the as is value of the property
- Having an acceptable rehab budget with a 10% contingency for unexpected costs
- Make sure the after repair value is acceptable to get your cash back when you refinance
- Make sure the property cash flows to cover the mortgage payments, property improvements and monthly profit.
- Get pre-approved for a loan – Have good Lender: Before you start looking at properties, it is a good idea to get pre-approved for the purchase rehab loan and the refinance for the DSCR long term rental loan.
- Have a Good Contractor and Project Manager: This is very crucial in rehabbing the properties to find a good reliable contractor who works quickly. If you do not have the time or expertise hiring a project manager could be very beneficial.
- Have a Good Attorney and Accountant: a good real estate attorney is necessary foir all real estate transactions. A good tax accountant will maximze your profits.
- Be patient: The BRRRR Real estate Investment Strategy is a long-term investment strategy. It takes time to find good properties, renovate them, and rent them out. Don’t expect to get rich quick.
If you are patient and willing to do the work, the BRRRR method can be a very rewarding way to build long term wealth through Real Estate.