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How the BRRRR method works

The BRRRR Strategy is a great way to quickly build up a substantial real estate portfolio. It involves buying a property, rehabbing it, renting it out, and then refinancing the loan to get the initial investment back out. This process can be repeated multiple times to build up a large portfolio of rental properties

However, it's not an easy process. You'll need to be very familiar with the local rental market and have a good idea of the costs associated with rehabbing a property. But if you keep your finger on the pulse of the local real estate market, the BRRRR strategy can be very successful.

BUY

The first step in BRRRR investing is to buy a property. But not just any property will work and you can't enter into a contract lightly. You must be certain that the property is a good value and you can afford it. When repairs are complete you'll have significant equity to tap. You can generate strong cash flows from rental income.

Estimating the home's after repair value (ARV) before making an offer is part of the process as is estimating the costs of those repairs. You'll want to be sure that the total cost of repair plus the cost of purchase, including things such as closing costs, doesn't exceed 70% of the ARV. This will mean being very honest about what you are capable of doing yourself, what you'll need to hire outside help for and what you must do to comply with your local building regulations. The costs of labor and materials can add up and all of that should go into the estimate.

When you make your offer, do it with no passion whatsoever. Offer what you can afford and don't stretch your budget to make something work just because you really like the property.

Rehab

Rehabbing a property can seem like a daunting task, but with the right team and plan in place, it can be a great way to improve both the property value and your return on investment. Key considerations include the mechanical systems in the property, as well as upgrades that will appeal to renters and future homeowners. Stay within your budget, and you'll be on your way to a successfully rehabbed property!

Rent

There are many things to consider when renting out your rehabbed property, but one of the most important factors is finding a reliable renter who you can trust. A strong rental history is key, and if you can find a stable renter who has been in the same field for a long time, that's even better.Make sure to check their credit history and make sure they're responsibly managing their finances by having a lease in place. Hiring a property manager can help with day-to-day responsibilities, but be sure to budget for it when setting the rent amount.

Refinance

If you have finished your project and have secured a renter, then it's time to work with the bank on recapturing as much equity in your property as possible. The bank may need an updated appraisal, copy of your tenants lease, and more information about your own finances. They may also acquire an updated credit report. In some situations, you may have to be patient and allow for your mortgage to season before you can refinance it. Often you will be required to hold the same mortgage and make on time payments for approximately six months, but it will depend on the loan product you used to secure the property and with what kind of loan you're refinancing it.

You can choose to refinance your equity entirely or use a second mortgage to tap into what's available. Speak to an accountant about how to proceed for the best longterm outcomes.

Repeat

The last step, if you did the rest correctly, is a piece of cake: repeat. You simply go back to the “B” in BRRRR, and work your way down. Before you choose your next property, it’s a great idea to go over the project you just completed and look at what things you did well and what things you could have done better.

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