Quick Summary
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It is a popular real estate investing acronym, best displayed in bullet point form:
Step 1: Buy
Step 2: Rehab
Step 3: Rent
Step 4: Refinance
Step 5: Repeat
BRRRR investing is similar to house flipping because the key objective is to find a run-down investment property and then transform the after-repair value of the house with a well-executed renovation. The big difference is that instead of selling the property for a profit, your end goal is to generate as much rental income as possible by increasing the market value of the property.
In other words, it’s a unique take on the buy and hold real estate investment strategy. Instead of selecting a turnkey property that tenants can move into immediately, the houses you choose for BRRRR investing must be in desperate need of renovation. When done correctly, you can effectively purchase discounted properties, shape them up, and then max out the rental income.
Table of Contents
What Is the BRRRR Method?
To fully explain the BRRRR Method, let’s run through each of the key steps.
Step 1: Buy
The First Step with the BRRRR strategy is to buy a property. Investors that know how to identify run-down properties with potential have the most to gain from this real estate strategy.
The research methods that you would use to find a fix and flip are nearly identical to the research methods you would use to find a BRRRR property. The main difference is that investors place greater emphasis on the average rental amount in the area, rather than the average resale value.
Bonus Tip – FlipScout is a search engine for property flippers that can be leveraged to find BRRRR properties. It is entirely free, but you will need to sign up in order to start searching for properties.
Step 2: Rehab
Once the property has been purchased, the next goal of the BRRRR investor is to transform the property value, in order to increase the gross rental income that it can generate.
When calculating the rehab costs, you need to be mindful of how much greater the long term rental amount will be once the renovation is complete. For the investment to be cash flow positive, you must be able to purchase the property for the right price (if in doubt use the 70 percent rule) and you must keep to a strict rehab budget. When setting your rehab budget, you must have a very good understanding of how it will lead to an increase in rental income.
One additional benefit of doing all the repairs before you start renting out the property is that your tenants are less likely to run into issues for the first couple of years of occupancy. The property itself might not be brand new, but all the major weaknesses should be fixed in the rehab process.
Step 3: Rent
As soon as the renovations are complete, you need to start looking for tenants. This is hugely important because when you can confirm that the property is generating rental income, it will be much easier for you to negotiate the refinance agreement with your loan provider.
Step 4: Refinance
Typically, BRRRR investors will make use of a hard money loan to purchase the fixer-upper property. This is mainly because banks are less inclined to lend money to people hoping to purchase run-down investment properties.
There are 2 main drawbacks of hard money loans:
● The interest rates are invariably higher than traditional home loans
● The loan terms are usually 24 months or less
More importantly, at the end of the loan term, the expectation is that the property investor pays back the full amount owed to the hard money lender. With fix and flips, this isn’t an issue, because the investor will sell the property to a new buyer for significantly more than they initially paid for the house. This allows them to pay back the hard money lender, cover the costs of the rehab, and make a healthy profit in the process.
With BRRRR investors, however, the investor needs to source a new mortgage (usually a long-term rental property loan) to pay off the amount owed on the hard money loan. Importantly, the new loan should have a much longer-term (30 years) and a lower interest rate. By completing this step, the investor avoids the financial burden of paying for the property out of their own pocket, while greatly improving the cash flow of the investment.
Step 5: Repeat
This step is pretty obvious, but once you’ve bought, renovated, rented, and refinanced a property with this approach, the final step is to repeat the process, but with an entirely new property.
Provided your initial property is generating positive cash flow every month (it should be if you’ve run the numbers correctly), you should be in a stronger financial position then you were previously. Each new property then becomes part of an ever-expanding portfolio.
To see how all of these pieces of the puzzle fit together, New Silver has built an user-friendly BRRRR Calculator. Using it once or twice will give you a better feel for all the financial elements that go into a BRRRR property deal.
Pros & Cons of the BRRRR Investing Strategy
Pros
● You can buy discounted properties to build your rental portfolio
● It is an effective way to build wealth over the long term
● It is arguably the cheapest way to implement the buy and hold investment strategy
● If you are clever with the refinance loan, you can potentially get your initial investment back out
Cons
● If you use two loans, you are likely to pay two sets of closing costs
● You need good project management skills to complete a BRRRR project successfully
● You need to have a firm grasp of which renovations will increase the maximum rent amount
● The time, energy, and capital needed to complete a BRRRR deal can make it difficult to scale
How to Find BRRRR Properties
To find BRRRR properties, you can draw inspiration from the methods that real estate investors use to find houses to flip. The list below summarizes some of the most common methods:
1. Use FlipScout By New Silver – The primary purpose of FlipScout is to help real estate investors identify houses that have the potential to be purchased for less than the market value of similar houses in the area. Think of it as a search engine that has been custom made specifically for property flippers, that can also be leveraged to find BRRRR properties.
2. Leverage The Power of Wholesalers – The whole point of wholesalers is to connect motivated sellers with interested buyers. Although there is a fee involved, the value that a wholesaler can deliver often far outweighs their fee. By choosing this route, you can access to the wholesalers’ full library of properties and their knowledge of which properties are selling below market value.
3. Attend Bank Auctions – When houses enter into foreclosure, they are often sold via bank auctions for less than they are worth. As an aspiring property investor, attending physical auctions and even online auctions can help you find deals that never make it to the open market.
4. Sign Up To A Multiple Listing Service (MLS) – Even though MLS listings can be competitive, it is still a good avenue for finding BRRRR properties. The MLS is literally a database created by real estate agents, and it is filled with property details and statistics that can help aid your research process. There is a fee involved, but one deal is all you need to comfortably cover the costs.
5. Use Popular Real Estate Websites – Although listings on websites like Zillow and Roofstock are very competitive, users might not be viewing those listings through a BRRRR filter.
For instance, most home buyers won’t be interested in a house if it clearly needs a lot of renovation before they can move in. With BRRRR investors, however, the worse the condition of the property, the easier it will be for them to transform the market value. In other words, you can still find gems on popular real estate sites, provided you have a clearly defined mental filter to help you sort through all the options.
How much can you make from the BRRRR strategy?
It is entirely possible to add massive value to your net worth with this particular real estate investing strategy. However, the process is time-intensive, which could prevent you from scaling as quickly as you might like.
A good goal would be one BRRRR property every two years. If you are able to do more than that, then you can obviously scale your portfolio faster, with each new house becoming a valuable addition to your ever-expanding asset column.
BRRRR Method FAQ
How Do I BRRRR With No Money?
One of the most popular myths in real estate investing is that you can buy a property with no money. While it may be true that you can use “other people’s money” that’s just an obtuse way of saying that you can borrow money from a company, be it a bank, hard money lender, or private lender.
With that being said, you can get started with BRRRR investing without having a small fortune to your name. The most important thing is to be able to service the loan repayments and to save for a down payment on the property.
If you aren’t sure how much to save, 20% of the purchase price is always a good guideline. This will open up doors with banks, hard money lenders, and private lenders. It will also reduce your mortgage repayments for the short term loan and the long term loan.
Do you have to use a Cash-Out Refinance (Refi) Loan?
If you use a traditional mortgage to purchase the property, a cash-out refi loan will probably be the most convenient way to refinance the property. However, this isn’t your only option. You can also just use a short term loan for the buy/rehab phase, and a normal rental property loan to complete the refinance component of the BRRRR process.
How does the seasoning period work?
The seasoning period is most relevant to investors that are able to complete a BRRRR deal with a traditional mortgage. A “seasoning period” is how long you have to own a property before the bank will lend on the appraised value instead of how much you’ve invested (biggerpockets.com).
If your bank requires a seasoning period, this can obviously slow down the BRRRR process dramatically, and it could threaten the success of your BRRRR deal. Once the renovations are complete, the last thing you want is an extended period without tenants.
How long does BRRRR investing take?
Ideally, you should aim to complete a BRRRR project within 4-12 months. The timelines are very similar to what you would aim for when completing a fix and flip.
It’s also worth mentioning that the faster you are able to run through the Buy, Rehab, Rent, Refinance process, the more money you will make, especially in the short term. On the flip side, the longer it takes, the more expensive it becomes. There are two reasons for this.
- Reason 1: Every month without a tenant translates to greater holding costs for you
- Reason 2: Every month with a hard money (short term) loan will cost you more in terms of the monthly repayment
In other words, you should be relentless about completing the rehab quickly, finding a reliable tenant asap, and then orchestrating the refinance deal with a reputable lender. At this point, it’s worth mentioning that New Silver can help you:
● Find a suitable BRRRR property with FlipScout
● Fund the property with a short term hard money loan
● Convert the short term loan to a long term rental loan
Is the BRRRR Method A Passive Income Strategy?
Once you’ve set up a BRRRR property, it can be considered ‘passive income’. However, this is somewhat misleading, because there are a number of steps that you need to follow before you actually get to this point. To simplify this question, think of it this way:
● BRRRR investing is very active in the short term, but…
● It can become very passive once the tenants are in and the property is refinanced