A brief outline
The BRRRR real estate investing strategy is a hybrid of both active and passive income generation which offers savvy investors the chance to build their rental property portfolio. However, the trick is finding the right properties to make this a success. Read on to discover how to find BRRRR properties using various methods.
Key Topics
Real estate investing involves a variety of strategies with different schools of thought on each. Which means that investors can pick their preferred strategy and use this to work towards building wealth. One such strategy is the BRRR method, which represents a unique method of investing that combines active and passive income into one strategy. In this article we’ll outline exactly what BRRRR investing is and how to find BRRRR properties.
What is BRRRR investing?
The BRRRR method is a way to invest in real estate and it means buy, rehab, rent, refinance, repeat. The acronym describes the framework of the strategy by illustrating each step of the process, in the correct order that it would be done.
- Buy: An investor begins by purchasing a property, often one that is distressed.
- Rehab: The investor will then rehabilitate the property by doing repairs and renovations to improve it.
- Rent: Once the property has been revamped, they will rent it out according to market standards. The rental income that the investor receives over time will help the investor cover the mortgage and build up equity.
- Refinance: Once this equity has built up, the investor will refinance the property and purchase another property using the money.
- Repeat: So, the cycle repeats itself again.
What is a BRRRR property?
A BRRRR property is one that is affordable, needs some upgrades, and is in the right area for renting. When choosing a property for this real estate investment method, people often buy properties that are in distress, which means that they are in pre-foreclosure, foreclosure or already bank owned. That’s because these properties are invariably cheaper as the bank or the owner will be willing to take a lower price just to get it off their hands.
It’s also important to remember that choosing the right BRRRR property revolves around location, location, location. If you find the right property, in the wrong area, this won’t be worth your while, no matter how much you upgrade the house. The property needs to be located in an area where it will be easy to find tenants to rent it to, to limit the amount of time that it stands vacant and increase the time it’s generating money.
How to find BRRR properties
Method 1 - Driving for Dollars
The age-old driving for dollars method is a staple in the real estate industry and it has its place in the BRRRR method as well. Driving around neighborhoods that would be good for families or people looking to rent a home can be a successful way to find a property to rehab. Make sure to look for homes that are boarded up or in foreclosure, because there’s a high likelihood that the owner is wanting to get rid of the property as quick as possible.
Method 2 – Real estate websites
A sure-fire way to find properties is usually the MLS, however to find distressed properties, you can look under the applicable sections. Other real estate websites like Zillow or New Silver’s FlipScout also list distressed properties where you can find houses that are in pre-foreclosure, foreclosure or are bank owned. There are also specific distressed property websites such as Hubzu, that you could use to find different types of distressed properties such as government owned properties and REO’s.
Method 3 – Property auctions
Going to a property auction is an easy way to find a property that should sell way below market value. You can find auctions the newspaper, or on auction websites like realtytrac.com or auction.com. If you’re going to an auction however, remember to take cash or a cashier’s cheque because those who win the bidding are usually required to settle the down payment or sometimes more, in cash or a cashier’s check before leaving the auction.
Method 4 – Using signs
Another technique used by real estate investors to find BRRRR properties is by using signs placed strategically in high traffic areas where potential property sellers could come across them. If you’ve seen any signs around with “We buy distressed houses” and a number to call, these are the kind of signs that can be used. Poles near traffic lights are the best place to post these so that drivers can read them while they’re waiting at the traffic light.
Method 5 – Real estate wholesalers
Leaning on your fellow real estate enthusiasts is another efficient option to find the type of property you’re looking for. Wholesalers find good real estate deals and get the contracts to sell them to investors. If you find a reliable wholesaler to work with, they may also come in handy as your portfolio grows to help you find what you’re looking for. Wholesalers take the leg work out of the property search however you may not get the property at the lowest price due to the wholesaler’s profit margin.
Method 6 – Banks and lenders
Another way to find distressed properties is through the banks and lenders themselves who will be re-possessing the properties. They may have a host of properties already in their possession that they’re waiting to get rid of, and here’s where you can find a good deal. You can take a look at their websites; they often have sections where they show the properties that are currently in their possession. This method can go quicker than the others as you’re buying a property directly from the bank or lender themselves without a middleman.
Can you BRRRR with a loan?
Investors who are new to the world of real estate usually find it difficult to buy a property outright without getting finance. There are a few options for those who’d like to do the BRRRR method using finance.
- Traditional bank loans: These loans are an option for investors who would like to go the conventional route, however they may not be available for houses that are in poor conditions. The down payment required for these is usually between 20% and 25%, however the interest rates are typically more competitive.
- Hard money loans: These loans are a quick and easy solution for investors who are looking for fast funding with less stringent lending criteria. Hard money loans usually have higher interest rates; however they are also a great solution for BRRRR investors because they are short-term loans and can be used to finance the rehab and/or the purchase of the property. Some hard money lenders like New Silver even offer a BRRRR calculator to help you figure out your finances.
- Private loans: These can be obtained through friends, family, or private lenders. Interest rates will vary, based on your relationship with the lender. This can also be a useful way to finance the rehab part of the project, as well as the property purchase if need be.
Does the BRRRR method work?
The BRRR method can and has been a successful way to invest in real estate for many years. It’s a great way to build up your real estate investment portfolio and generate passive income. There’s no end to this strategy, and you can continue to build equity and expand your portfolio with time.
It’s important to remember that this is a long-term strategy however, and that it initially requires active involvement from the investor to manage the process and the rehab project. Patience is key, when it comes to the BRRRR method, and as with most things, if you do your research and put effort into it, you could make a success out of it.
Final thoughts on BRRRR properties
The BRRRR method is particularly useful for investors who are looking to build up a passive income portfolio from start to finish. However, investors who choose this option will need to be prepared for a certain amount of risk and be willing to put in the time and energy required to get the ball rolling, and then keep it rolling. Rehabbing properties takes work, however this strategy can be quite rewarding once it is in motion.