So you’re looking into real estate investment and you’ve come across the term BRRRR investing. You’ve heard that you can make serious money quickly with the BRRRR method. But what exactly is it?
First, you need to know what the BRRRR acronym stands for:
The first step is to get a great deal on a property. For the BRRRR strategy to work for you, you have to have a great eye for properties with excellent potential. This means that, for starters, the property you’re eyeing should be low cost but be in an excellent neighborhood, have a solid foundation, and only need cosmetic or other minimal repairs.
To make your purchase profitable, you have to make it livable. Rehabbing is all about making sure that the house you just bought is fully functional and that any changes you make will raise its value. When fixing up the house, you need to make wise decisions financially. You want changes that will look great but won’t cost a lot. After all, you’re going to be selling the property again in the future and will likely have to make additional renovations before selling.
The next step is to rent out the property to great tenants. You can hire a property manager, or if you’re feeling confident, you can take care of this process yourself.
Now’s the time to recoup your investment. Make sure to let your tenants know once you’ve made your decision to refinance. This is so they’ll have enough time to move out and you can fix up the house again so you can get a conventional (low-interest, fixed) mortgage that amounts to about 70% of the original property value. This is what you’re going to use for the next step of our strategy.
Now that you’ve made a profitable investment, it’s time to repeat the process all over again! Your long-term goal with this strategy is to have multiple properties that provide you with positive cash flow.
The BRRRR strategy is an excellent way to invest in rental properties when you don’t have a huge capital because you’re going to be buying a low-cost but high-potential property and then boosting its rental value through renovations. This ensures that you to get a good Return on Investment and allows you to refinance and repeat the process all over again.
Now that you’re familiar with what the BRRRR method is, it’s time to look at the pros and cons.
Great Tenants - Because you’re rehabbing your property and making it really attractive to tenants, you can take your pick of the best tenants.
Excellent ROI - Your initial out-of-pocket investment is low, you’re going to have a continuous cash flow times infinity depending on how many rental properties you get.
High Equity - You don’t just own a rental property with the same value that you paid for, you buy a low-cost property, spend some money, and end up getting 20%-30% equity per investment.
Risk, risk, risk - BRRRR investing can be risky. During rehabilitation, you might go through some unforeseen risks like major repairs that were not discovered during your appraisal. There’s also the appraisal risk. What if the home doesn’t appraise enough after the rehab to secure refinancing?
Expensive short-term loan - The initial short-term loan you get can be very expensive. Plus, the refinancing bank might require a “seasoning” period of six to 12 months after the purchase before refinancing.
BRRRR investing is viable and profitable, but you need to make the right decisions for it to work its magic.
Want to know if BRRRR is right for you? I’d love to help you out. Schedule a consultation now and let’s talk!