Think about this, you’re in a real estate event, and suddenly you hear the term “BRRRR,” and you get confused because you’ve no idea what it is all about.
Do you fall under this category?
If you then this article is just for you.
In this article, we’ll be discussing everything about the BRRRR method in real estate. Starting with what it is.
What is BRRRR?
The BRRRR Method stands for “buy, rehab, rent, refinance, repeat” and is a strategy plus framework leveraged by investors who want to build a passive income stream over time. This acronym represents steps that should be taken in the exact order as they appear in the term.
To start with, an investor buys a house that they rehabilitate. The newly revitalized house is then rented out to tenants for an extended period, through which the rental income can enable the owner to pay the mortgage, earn profits, and build up equity over time. Once a sizable amount of equity in the property is built up, the investor can then purchase a second property by refinancing the first, and this goes on.
Pros of BRRRR
- Potential for a High ROI: If you get to buy a distressed property at a rate less than the market rate, you can renovate it and then sell it at a much better price.
- Building Equity: When done correctly, you can get up to a whopping 30% equity when refinancing your property.
- Scalability: With the BRRRR method, you can start with a very little initial investment and then slowly and steadily build up your portfolio over time.
- High-Quality Tenants: If a home is rehabbed and then meets or exceeds the standards of houses from the neighborhood, it is likely to lure good tenants. Such tenants will be willing to pay high rent in exchange for the available perks and features, leading to good rent and cap rate.
Want to understand the term in more detail?
Let’s deep dive-
Since the BRRRR method first includes buying distressed properties, you first may need to use driving for dollars and then search for properties in a specific area that can be later repaired and renewed, and rented for a better price. Besides driving for dollars, you can also use other ways to find distressed properties like social media, online directories, etc.
Once you’re done with finding and buying a distressed property, then the next step is to rehab it. The primary function of rehabbing is to make the property worth living in. If you’re experienced in repairs and renovations, you can do it yourself, but if you don’t have enough experience, it is advisable to contact an expert and get the property repaired.
Also, before you start to repair and renovate it make sure to visit the neighborhood and check out the standard of other nearby houses so that the property can look attractive enough to the tenants.
So you’re done with the first two steps, and now it’s time to take the most crucial step that is renting the property out. Start with knowing the rent for the nearby houses and then decide the rent for your property. Once you decide, let the people know that you’re looking for tenants. You can use methods like to-let signs, adding them to online directories or sharing about it on social media, etc.
And now that you’ve rented out the property for quite some time and built equity, you can start the process of refinancing. Find a lender that allows a cash-out refinance and check the requirements for the loan. Most lenders will have a maximum debt to income ratio expectation, a minimum credit score requirement, and sufficient equity at the home level.
Here comes the last step– Repeat. Use the money that you generated from your first property to buy the next one. Now repeat the entire BRRRR method and keep making money.
If you’re thinking about if this process still works in 2021, then let me tell you that it does. Now go, use driving for dollars, and try the BRRRR method yourself to see the results.