What is the BRRRR Method of Real Estate Investing

What is BRRRR Method

The BRRRR method is a common method that real estate investors use to build their rental portfolio overtime. BRRRR stands for buy, rehab, rent, refinance, and repeat. Its simple: Buy a distressed and rundown property, renovate it, rent it out, get a cash-out refinance, and use the cash from the refinance to buy another property. This is a great way to start building your portfolio.

BUY

While the process seems simple, its actually a lot of work, and you have to be strategic with each step. The first step is “buy”, but you can’t just buy any house you like that you think could use a makeover. A rule of thumb is to try and buy the ugliest house in the neighborhood, and at the lowest price possible. To figure out if its a good deal or not, you’ll need to consider a few things. The first thing to consider is how much money it will cost to rehab the property. Then, you’ll need to figure out what the ARV is, or “after rehab value”. You’ll want to keep the cost of the house + the cost of renovations under 70% of the ARV. Plus, you’ll need to make sure the neighborhood has a good rental income potential! All of these factors will be vital in determining your purchase.

REHAB Renovations can be the hardest part, but also the most exciting. It’s a good idea to have a crew on your side that you trust to get the job done in a professional and timely manner. You’ll most likely be renovating things such as kitchen cabinets, countertops, bathrooms, floors, landscaping, and even roofing. You’ll also need to consider the fact that this will be a rental property, and tenants don’t always take care of property that isn’t their own. The most important rule here, however, is to stick to your budget.

RENT

Once renovations are complete, its time to find a tenant to pay your mortgage. The number one rule for finding a tenant is to be picky! You want a tenant that will take good care of your house, and pay on time every month. I would consider running a background check, pulling their credit score, and looking at their employment history. Having a strong rental history is actually really important for the next step, so make sure you pick a good tenant!

REFINANCE

Now that you have renovated the property and have a paying tenant, the value of the property is significantly higher than what you bought it for, which means you have equity. A cash-out refinance allows you to tap in to that equity, and use the cash however way you choose! The bank will require you to have an appraisal done on the house to determine its new value, plus they’ll require proof that you have a paying tenant. Once you have the cash from the refinance, its time for the next step.

REPEAT

Use the cash from the refinance to buy and flip another property!

As you can see, this process can be repeated over and over again, allowing you to build your real estate portfolio over time, with little of your own cash to start.

If you have any questions, or are interested in starting your own real estate investing journey, reach out to me at any time!

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