The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method is an advanced real estate investment strategy that can result in infinite return. When experienced investors use the BRRRR method correctly, they may have zero capital left in the investment property.
The real estate investment strategy consists of buying a distressed property, conducting a rehab on the property, renting the property out to tenants, and conducting a cash-out refinance to retrieve investment dollars to fund future properties.
Using the BRRRR method is an advanced investment strategy that does take practice and experience to be done correctly. The total structure of the BRRRR method combines both the fix-and-flip and buy-and-hold investment strategies. Therefore if you have not had any experience using the fix-and-flip or the buy-and-hold strategies, you should be very cautious using the BRRRR method.
How To BRRRR A Property
The great thing about the BRRRR Method is that the acronym describes the processes needed to conduct this real estate investment strategy.
1) Buy a Distressed Property
The first step to using the BRRRR method is to make sure you buy a distressed property that needs work. You must see opportunities to add value to this property that is within your budget.
Since the next step within the BRRRR method is to conduct a rehab on the property, you want to ensure that the property you find has value-add opportunities that will be worth your time and money as you begin to rehab the property.
The BRRRR method, similar to other investment strategies, requires sound property analysis as a crucial first step to buying.
If you are unsure about the property analysis needed before buying the property, speak with experienced house flippers to understand if the numbers will still work after you conduct the rehab. Doing all the due diligence necessary upfront will save you both time and money as you begin the process.
2) Conduct the Rehab
Conducting a rehab on the property is never a straightforward process. It's important to have a thorough plan to rehab on the distressed property. Your first improvements should be things that will make the property livable for tenants.
Once the property is livable, then decide what other improvements will dramatically increase the home's value. Typically updating amenities within the kitchen and bathroom are surefire ways to increase the value of a property.
After you have planned out exactly what you want to achieve during rehab, a general contractor or house flipper to get a second opinion of your suggested improvement may have valuable feedback that you may overlook if you are completing your first BRRRR.
3) Rent Property to Tenants
Right after the rehab is complete, do your best to get the property rented out as quickly as possible. This is a very important step within the BRRRR process so that you can start making some income on the property.
During the months that you are conducting the rehab, you'll be paying holding costs such as the property taxes and insurance on the property. By having a tenant moved in, you can now use the rent to pay those holding costs.
You want the process of finding a tenant to be fast, but do not do it at the expense of finding a quality tenant. Do not skip steps during the tenant screening process because it can result in long-term headaches and additional costs.
Outside of conducting a thorough tenant screening process, make sure you gauge the median rent rates in your area so that the rent is bringing in enough money to cover the future mortgage on the property. Based on the property's current value, you should be able to estimate the mortgage on the property once the cash-out refinance is complete.
4) Conduct a Cash-Out Refinance
Conducting a cash-out refinance is what makes the BRRRR method unique. The difficult part about conducting a cash-out refinance is finding a lender and meeting the qualifications for the loan.
Not all banks and credit unions will allow for a cash-out refinance. Therefore, it is your job before you start the process to qualify for a cash-out refinance by a financial institution. It is important that you find a financial institution that will allow you to do a cash-out refinance before buying a property so you know in advance if you can get your money out of a property.
The process of obtaining a cash-out refinance is not any different from that of the original refinancing process. Therefore you need to budget for an appraisal, closing costs, as well as additional fees that are included when someone refinances the property.
5) Repeat Step 1-4
The final step of the BRRRR method if it is to take the cash that you received at the cash-out refinance and use it to purchase another property. In the ideal case, you would be able to pull out all of your invested capital to put forth a new investment property.
The ability to continue to buy new investment properties reusing the same capital is one of the biggest pros of using the BRRRR method. However, this is the ideal case, sometimes by doing a cash-out refinance process, you are not able to pull out all of the capital you invested, but that is okay.
Even though your money may be tied up in the property long-term, you bought the property at a deal; you still will be able to make an amazing return on your money invested in the property.