If you’re a budding real estate investor seeking to learn more about investing, it’s not the first time you have encountered BRRRR in real estate investment. But for those who have just discovered the term and are curious about how it works, read through it to expand your knowledge.
What is BRRRR?
BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. Now, it’s pretty self-explanatory when you first look at it, but there’s more to it than just that.
Let’s dissect each to give you a better understanding and learning foundation. The premise of the BRRRR strategy is to purchase (buy) property at a fair discounted value, finance it (rehab), find a tenant (rent) to occupy it to secure cashflow, borrow on the appraised value from loaning banks (refinance), and do it again (repeat).
How To BRRR Effectively
Also known as the smart investor’s investing cycle, here are the 5 essential elements of the BRRRR in real estate investment.
Let’s cut to the chase. Buy a property below market value and NEVER invest more than 75 percent of the property’s after repair value (ARV). You do not want to run out of capital and pay forever.
Try to seek recommendations from a reliable and experienced investor, they should be able to give you conservative numbers to ensure you have room to recover from problems you may encounter along the way.
There is nothing more to this element than just making the property livable, functional, and attractive. Inspect the property you just bought and have a closer look at the roof, drywall, bathrooms, and the basement.
A few of the most important areas in the house are the rooms. While there is no standard number of rooms that can please tenants, it is more advisable to look at the purpose of space to make better decisions.
If we’re taking things equally and everything goes well, say you were able to find a tenant who can pay you each month, you should not have any problems with appraisal visits for the next “R” after rent.
The formula is simple: rehab your home to the best it can be to attract the right tenants plus your initial comparable sales. Lenders are more impressed with properties that are well taken care of.
You also need to watch out for your seasoning period. The period is the duration to which you have owned the property. Take note, always seek to borrow on the appraised value.
Basically, use the BRRRR strategy for another project and kickstart your real estate investment career!
The ease of the traditional way of buying rental properties is attractive, but don’t let it seduce you. Things you find easy are often not the best.
Traditional Method Hurts Deal Flow
Go back to the premise of renting first before refinancing the property. These lenders and banks require livable properties. If you buy a property out of a loan and spend so little to make it look attractive, prospectives will turn their backs on you.
A Mistake You Don’t Have To Make
One of the mistakes traditional investors make is spending as little money on rehabbing the property rather than adding value. By remodeling and making your property look more liveable, you attract tenants who have the capacity to pay you monthly. Remember, adding value means increasing equity.
So, what’s in it for you? Execute BRRRR in real estate investment correctly to get past the risks, drop down the safety net and recover your investment, or gain more than what you invested.
We totally get you. The idea of buying a property and remodeling it using cold cash can really be intimidating. If you have seen this video and are still not convinced, why not have a quick chat with the Professional Landlord?
Sometimes, a leap of faith works a wonder. But if you take advice from a reliable investor, you can secure your investment.
There’s no secret to it. Here’s how to do BRRRR the right way!
Watch Michael and fellow investor Roman visit a property, plan its rehabilitation and pen down finances.
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