The BRRRR method is a popular method with real estate investors, but what’s there to know about executing it? Here’s your guide!
Back to Basics: What Does BRRRR Mean?
The BRRRR method simply stands for Buy, Rehab, Rent, Refinance, and Repeat.
While the BRRRR method sounds similar to the buy and hold strategy, there’s a couple extra steps taken here. These ensure you can generate income year-round and continue to gain more properties.
Flip houses are an ideal investment for those who want to save money, but can’t get a mortgage. These properties typically have some cosmetic damage that’s easily fixable with general maintenance.
The math behind any investment strategy needs to make sense, so if your numbers line up for a BRRRR method, there’s potential of stable income over the long-term. Let’s break down each part of this acronym.
Buy
You can find the potential of any home by making needed repairs. And by adding value, you will have a higher chance at reselling your investment. In order to find the perfect home, one must think like a tenant and look for properties that are near amenities. Shops or schools will make it easier on your tenants as they commute in those areas with ease. Likewise, an outdoor space is important too! A middle road when looking at affluence: not too wealthy nor poor can complicate BRRRR method profit margins.
If you’re planning to buy a house, it’s important that find your cash source ahead of time so once identify the perfect property. Flippers cannot get traditional mortgages and will need hard money loans or cash to secure a property.
Rehab
With rehabbing a home, the sweet spot is making changes that add value but don’t cost too much. Aesthetics are important for attracting tenants. Not only do you need to consider what improvements, if any, can be made inside of a property but also how appealing the landscaping or exterior might look from outside as well!
The return on investment from luxury home improvements may not be worth the cost, so you should avoid them when using BRRRR strategy. However, making functional changes will improve value and deliver an even better experience for your customers!
Rent
Renting and refinancing are two strategies that can help you make your money work harder. Renting is always the better option because it allows you to start paying down your expenses with rental income while refinance paperwork processes.
The last thing you want is troublesome tenants who won’t pay the rent, so screen and check credit. You might want to work with a realtor, so they can steer qualified renters toward you. You could also use your personal network and someone who knows what’s good about the property will be more likely to respect it.
There are bound to be temporary vacancies in the market. You can’t always predict when someone won’t want your property, so it is best to leave some wiggle room for these possibilities and cover their unexpected expenses with an additional budgeting allocation.
Refinance
As a single-family rental home owner, you may need to do some research until find the right bank. Make sure that they offer cash payouts in order for them provide funding on your next purchase! When you have a bank that pays off your loan, it’s complicated to find financing for the next flip.
When you’re looking for a new mortgage, it is important to verify that they are lending on the appraised value and not your costs. This way, your payout covers the full value that you put into a home. A good range is 75 to 80 percent of its appraised worth; as this gives enough to move forward and start life anew again.
The appraisal, which comes early in the refinancing phase and could require an in-person visit from a home appraiser so make sure you let your renters know to expect this.
Repeat
Some people might think that investing in real estate is a static, one-time decision. But once they get their payout from the property and can reapply the BRRRR method again at any time with another investment opportunity.
It’s a great time to invest in real estate because you can get your money out quickly and start making more with each successful investment.
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