THE BEST INVESTMENT ON EARTH IS EARTH 🌎
BRRRR stands for “buy, rehab, rent, refinance, repeat.” In other words, the smart investor’s investment cycle.
The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Method is a real estate investment strategy that involves flipping distressed property, renting it out, and then cash-out refinancing it in order to fund further rental property investment.
Why choose BRRRR over conventional ?One of the main differences between the BRRRR method and a conventional investment property strategy is the focus on investing in distressed properties and on refinancing the purchased property in order to buy another one.
The traditional method of buying properties is popular because it’s the most convenient. Here, you purchase properties with a loan, usually from a bank. You’ll need a 20% to 25% down payment. The investor doesn’t have to work as hard to save up the full purchase price or find a hard or private money lender through financing. The ease of this method can be seductive!
However, like most things in life, easiest is not often best. Through the BRRRR method, you’ll buy homes quickly, add value through rehab, build cash flow by renting, refinance into a better financial position—and then do the whole thing again. Over time, you’ll build a real estate portfolio that’s the envy of your fellow investors. Let’s understand how does it works
1. Buy a property: The property you purchase should be a distressed property that needs some work to get up to code and ready to rent. Because of the home’s condition, it will likely be cheaper to purchase. When buying a distressed property, it’s important to calculate the after repair value (ARV). ARV is the estimated value of the home after you renovate or rehab the property.
Let’s start with your ARV. I recommend having a trusted source like an experienced agent, lender, or other investor give you a conservative number they believe the house will appraise for once it’s been repaired the way you intend. Take that number and multiply it by .75. This is your “target.” Your goal is to get the rehab and the purchase price to add up to this target goal
2. Rehab the property: Since the property is distressed, it may require extensive work. In this step, you’ll renovate the property to make structural, safety and aesthetic improvements and prepare it for renters. If you rehab correctly and make sure you add value when you do, you are pretty much guaranteed to recover your money—and then some. However, unless you buy and hold luxury rentals, generally speaking, these things aren’t necessary:
Granite countertops
Brazilian hardwood floors
High-end stainless steel appliances
Bay windows
Skylights
Hot tubs
Chandeliers
It’s also rarely worth finishing a basement or a garage for a rental. Instead, consider changes like two-tone paint, refinished hardwoods, and new tile.
3. Rent out the property: Determine the rental price and find people to rent the home.
4. Refinance :- Do a cash-out refinance on the property: With a cash-out refinance, you convert your equity into cash. You access your equity by taking out a bigger mortgage, borrowing more money than you currently owe. The cash can be used for anything, including purchasing another property. Use funds from refinance to buy another property.
5. Repeat :- In this final step, you’ll start the process all over again. Using the funds from your cash-out refinance, you’ll purchase another distressed property and rehab it, before renting it out and refinancing that property.
And, of course, the house needs to be in good shape. Everything needs to be functional. you gotta be landlord not slumlord.
Of course, your new investment won’t be in good shape when you purchase it. That’s the point! I intentionally look for properties that need massive repairs because I know other investors will ignore them and the sellers will be more motivated to drop their prices.
