Are you interested in employing the BRRRR method in your own real estate ventures?
If you’ve been following trends in the world of real estate investing, you may have come across a relatively new term ‘BRRRR’ coined by VP of Growth at BiggerPockets, Brandon Turner.
The acronym which stands for buy, repair, rent, refinance and repeat is a strategic investing method which if done right can help you build equity and your income portfolio without a major capital outlay.
Here are five things to know about BRRRR.
- B stands for buy
Any real estate investor worth their weight will tell you that the real money in these investments is made at the onset when you buy your property.
The key is to purchase a home that is either being foreclosed or one that is significantly listed below its actual market value. Now, in order to identify the best bargain, you’ll have to spend a considerable amount of time doing your homework on these properties.
Finding the right property to buy is like looking for a needle in a haystack. But once you’ve found one, you’re well on your way to fulfilling the rest of the steps in this method.
- R is for repair
These homes are usually in a sorry state and will require a bit of touch up to get them into good standing and ready for showing. This means the next step is bringing in a contractor to identify key areas that need to be fixed up.
Keep in mind that renovation costs can become very expensive very fast especially if you’re working with a new contractor you’re not familiar with. You’ll need to keep an eye on things and ensure that the repair and rehab is carried out in a timely fashion. Vacant properties are bad news. The longer it takes to finish the renovation, the higher the chances of break-in.
- R is for rent
With the home renovations all done, it’s time to lease out the property and get your first tenants on board. The sooner you can get tenants, the sooner you’ll have cash flowing in.
It will also be difficult to proceed with the next step of refinancing the property if the home is vacant. It’s rare that banks will agree to take on a property – no matter how great – that’s got no current tenants living in it.
- R is for refinance
Once you’ve owned a home for a certain amount of time, you may be eligible for cash out refinancing. This allows you to obtain cash to buy your next investment property.
It should be noted that each bank has its own set of rules for refinancing and that there is a Seasoning Period that one must fulfill before being permitted to apply for refinancing.
Simplified, refinancing is swapping out your equity for cash.
- R is for repeat
As soon as you’ve been refinanced by the bank for the property you bought, fixed up, and leased, you can move onto your next real estate investment.
In a nutshell, this is all there is to the BRRRR model. What sets apart this model from simply buying foreclosed or undervalued properties, fixing them and flipping them is that you rent them out after renovation to establish some cash flow while additionally building a bit of equity into the property.
Things to keep in mind concerning the BRRRR method
This method looks great on paper and in theory. But the real work is in actually finding low value properties.
It’s worth noting that this deal is dependent on the appraiser and how much the home has been valued at because most banks are in the habit of only giving out 75% of the property’s appraised value.
Don’t forget to go over the numbers again and again to ensure that they make sense and you’ll make a profit that you’re happy with.
Thinking of employing the BRRRR method and would like to talk to a property investor? Contact us for more information.