Tag Archive for: BRRRR

BRRRR Method: How Bridge Loans Pay Off

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Bridge loans on the front end are the key to successfully entering the BRRRR method.

BiggerPockets launched the BRRRR acronym a few years ago. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This acronym outlines a helpful strategy for successful real estate investing. 

It centers around buying properties with built-in equity. After renovations, the investor can refinance therefore creating a sustainable cycle of investments. 

Strategic Loans

Instead of throwing a DSCR at the whole thing from the start, we suggest a different strategy of kickstarting your BRRRR cycle. 

1. Start with bridge loans.

The BRRRR method is all about sustainable investing. How can you use other people’s money to keep cash flowing in and out of your projects?

This means beginning with a loan that’s going to cover those starting costs so you can get ownership and claim that equity! Bridge loans are perfect for this (especially if you get a private money loan).

A bridge loan is more flexible than a DSCR so you can cover the purchase, rehab, even the closing costs. 

2. Add the DSCR.

Once you’re actually starting to rent out the property, that’s the time for the DSCR. DSCRs have more restrictions anyways, so they’re most effective when used for renting.

The DSCR can pay off the bridge loan and you can refinance the property for an even better outcome. 

The Beauty of the BRRRR Method

By using this loan strategy with the BRRRR method, we’ve worked with a client who was able to come up with a plan that should easily generate over $1,000/month of positive cash flow for himself. 

And it all started with strategically using other people’s money to enter the BRRRR cycle. 

This is the beauty of real estate investing. It’s accessible and profitable, even for beginners. 

 

Read the full article here.

Watch the full video here:

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Don’t Kickstart Your BRRRR With a DSCR Loan

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A DSCR loan is great, but they’ll come into play at a later part of the BRRRR process. 

Let’s start with a real scenario we encountered a few weeks ago. A client from Michigan called. He’s done flips before and even kept a few rentals, but he’s new to the BRRRR method. 

In the past, he’s always used partners or cash to fund his investing. However, this property needs more money.

He’s buying it for $200,000, putting approximately $22,000 of rehab into it, and we’ll estimate closing costs around $7,000. That’s a total of $229,000 for a pretty basic investment property. 

Where can this client find the money, and how can he leverage it to his advantage?

He wanted to know if he could take out a DSCR loan to kickstart the BRRRR process.

Can You Use a DSCR Loan to Begin the BRRRR Method?

The short answer is technically yes. However, since you don’t currently own the property, you can’t claim the equity in it just yet which makes it a not-so-great deal.

For our example client above, a DSCR loan will only cover up to 80% of the purchasing costs. This leaves 20% leftover — a large amount of cash that our client and a lot of newer investors simply don’t have.

Additionally, a DSCR loan won’t cover renovations or closing costs.

If you’re trying to exclusively use a DSCR for a BRRRR, you’re going to see the payments begin to add up really quickly.

It’s typically better to wait until later in the process to bring in the DSCRs.

 

Read the full article here.

Watch the full video here:

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The BRRRR Method: When to Use DSCR and Bridge Loans

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How can you use the BRRRR method to get you in and out of a property with little-to-no money down?

Let’s start with a real scenario we encountered a few weeks ago. A client from Michigan called. He’s done flips before and even kept a few rentals, but he’s new to the BRRRR method. 

In the past, he’s always used partners or cash to fund his investing. However, this property needs more money.

He’s buying it for $200,000, putting approximately $22,000 of rehab into it, and we’ll estimate closing costs around $7,000. That’s a total of $229,000 for a pretty basic investment property. 

Where can this client find the money, and how can he leverage it to his advantage?

What is the BRRRR Method?

BiggerPockets launched the BRRRR acronym a few years ago. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This acronym outlines a helpful strategy for successful real estate investing. 

It centers around buying properties with built-in equity. After renovations, the investor can refinance therefore creating a sustainable cycle of investments. 

Can You Use a DSCR Loan to Begin the BRRRR Method?

The short answer is technically yes. However, since you don’t currently own the property, you can’t claim the equity in it just yet which makes it a not-so-great deal.

For our example client above, a DSCR loan will only cover up to 80% of the purchasing costs. This leaves 20% leftover — a large amount of cash that our client and a lot of newer investors simply don’t have.

Additionally, a DSCR loan won’t cover renovations or closing costs.

If you’re trying to exclusively use a DSCR for a BRRRR, you’re going to see the payments begin to add up really quickly.

A Better Plan

Instead of throwing a DSCR at the whole thing from the start, we suggest a different strategy of kickstarting your BRRRR cycle. 

1. Start with a bridge loan.

The BRRRR method is all about sustainable investing. How can you use other people’s money to keep cash flowing in and out of your projects?

This means beginning with a loan that’s going to cover those starting costs so you can get ownership and claim that equity!

A bridge loan is more flexible than a DSCR so you can cover the purchase, rehab, even the closing costs. 

2. Add the DSCR.

Once you’re actually starting to rent out the property, that’s the time for the DSCR. DSCRs have more restrictions anyways, so they’re most effective when used for renting.

The DSCR can pay off the bridge loan and you can refinance the property for an even better outcome. 

The Beauty of the BRRRR Method

By using this loan strategy with the BRRRR method, our client was able to come up with a plan that should easily generate over $1,000/month of positive cash flow for himself. 

And it all started with strategically using other people’s money to enter the BRRRR cycle. 

This is the beauty of real estate investing. It’s accessible and profitable, even for beginners. 

We’re Here For You

If you have any questions or want to discuss a project, reach out to us at Info@TheCashFlowCompany.com.

Please also check out the free tools on our website for downloads that can help set you up for success. Additionally, if you’re interested in the BRRRR method, make sure to explore our BRRRR roadmap. 

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Why You Need To Refinance a BRRRR

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Why can’t you just keep the first loan on your BRRRR? Here are the reasons to refinance a BRRRR.

The BRRRR strategy uses two loans. The second one is for the refinance – the third “R” in BRRRR.

You buy with a hard money or bridge loan, but eventually you need new funding for the property. There are 3 reasons why you need to refinance.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate When You Refinance a BRRRR

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance.

When To Refinance a BRRRR

Want the greatest profit on your project? Have the refinance loan ready by the time you buy your under-market property.

If you need help finding the right refinance loan, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

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What You Need In Investor Loans for a BRRRR Buy

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Using investor loans to make your BRRRR profitable.

The BRRRR strategy uses two loans. The first is the “B” of BRRRR – buy. Does it matter what kind of loan you use?

There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This eliminates the need for a down payment, making the process more repeatable (and profitable).

2. Quick Closing with Investor Loans for BRRRR

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your bank account, then it almost defeats the purpose of a value-add property. But if you use the buy loan to leverage all rehab costs on a BRRRR, more cash stays in your pocket.

The Best Investor Loans for BRRRR

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Read the full article here.

Watch the video here:

https://youtu.be/_cdQkaaXxAw

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How BRRRR Works: The Two-Loan Strategy

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Buy and refi: here’s how BRRRR works.

Say you buy a house and rent it. What’s the big deal? Hopefully, your rental income is a little more than your mortgage payment, and you’re able to pocket the extra cash or save it for future real estate purchases.

How does BRRRR differ from this?

There’s a driving power behind BRRRR, making it a more profitable and fun process than simple rental investments.

BRRRR uses a two-loan strategy to capture maximum equity in value-add properties. Let’s go through these two loans and see how BRRRR works.

Buy: How the First BRRRR Loan Works

The first loan is the “B” of BRRRR – buy. There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This takes less out of your pocket and makes the process more profitable and repeatable.

2. Quick Closing

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your pocket, it almost defeats the purpose of a value-add property. It’s best to use the buy loan to leverage all rehab costs on a BRRRR.

What’s the Best Buy Loan?

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Refinance: How the Second BRRRR Loan Works

The third “R” in BRRRR stands for refinance. At this point, we need a new loan on the property. There are 3 reasons.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance. 

Diving Deep Into How BRRRR Works

BRRRR is a powerful real estate investing strategy. We want to take away the mystery of how BRRRR works.

Download our free BRRRR map to put you on the right track with your next deal. And email us at Info@TheCashFlowCompany.com with any questions.

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3 Key Fundamentals of BRRRR

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The top 3 fundamentals to keep in mind when learning BRRRR.

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

We’ve helped investors through this process for over 15 years.

Here are the 3 key fundamentals of BRRRR we’ve seen make these transactions successful.

Key Fundamental #1: Building a BRRRR Team

Firstly, you have to find off-market properties.

The really good under-market BRRRR properties won’t just jump into your lap. These properties require a little digging, and – more importantly – a team to help you.

You’ll need to know wholesalers, real estate agents, other investors, and anyone else who can help you locate good undermarket properties.

(It’s also an advantage to keep lenders on your team so you can close fast on these great properties once you find them.)

Key Fundamental #2: The Money Side

“It takes money to make money.”

If you can learn the basics about the costs of your BRRRR projects, then you can squeeze more money out of each project.

We always say that there’s money in the money. Do the research to learn about real estate before your first investment, and you’ll be miles ahead of other investors.

Key Fundamental #3: Using the Right Leverage

Yes, it takes money to make money, but it doesn’t have to be your money.

Plan for and understand the entire BRRRR process, and leverage can work to 10x your net worth.

For More on BRRRR

Overall, this only brushes the surface of BRRRR. Over the coming weeks, we’ll visit each of these topics in much more detail. Why do you use two loans? How can you do this with zero money down? How do you go about a refinance?

If you have a deal now you’d like us to look at for you, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

https://youtu.be/JbO2YFxuPmw

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How BRRRR Properties Create Wealth Immediately

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What properties make you money as a real estate investor? Here’s how BRRRR properties create wealth instantly.

There’s no contest: BRRRRs create wealth WAY faster than retail properties.

In fact, the right BRRRR property can create a net worth increase of 25% of the value of the property nearly instantaneously.

To show this in action, let’s break down the examples of two houses with the same numbers – but one is a BRRRR property and one is retail.

Retail vs BRRRR: The Numbers

  • Value: We’re comparing two homes with the same value – same neighborhood, same block, same size. Let’s say the value is $400k.
  • Loan: For the BRRRR, our total costs would add up to $300k ($250k purchase price + $50k closing, rehab, etc). Our leverage 100% covers this amount. For the retail home, we could get an 80% LTV, so our remaining loan is $320k. On retail, we have less cash flow because we owe more money.
  • Cash Transfer: With BRRRR, you’re moving $0 of your own money. This is why properties with the BRRRR strategy are so popular for investors. With the retail property in our example, you need to transfer $80k of your money as a down payment. 

There are two problems with the cash transfer requirement in retail properties. 1) You need the cash to get into it. And, 2) The last “R” in BRRRR is repeat, so you’d have to have $80k again for your next property and your next. On under-market BRRRR properties, the zero out-of-pocket costs free you up to repeat the process over and over.

  • Payments: BRRRR payments will be lower than retail payments by about $25-$50/month, simply because the loan amount is lower.
  • WEALTH: The BRRRR strategy property immediately creates $100k. The retail property adds $0. It only has the loan + the $80k that was yours to begin with.

How BRRRR Properties Create Wealth

The wealth in BRRRR comes from the difference between the value of the property and what you owe on it. This usually ends up being 25% of the value of the home.

If you multiply this process by 5-10 properties? You’ve suddenly got half a million to a million dollars in net worth.

Have BRRRR properties create wealth like this isn’t just wishful thinking. In 2010, we helped multiple families buy 10 properties in one year using this method. Many of their properties tripled and quadrupled in value over the last 10+ years.

The 2023 market is shaping up to look a lot like 2010. The time to buy is coming soon.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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BRRRR vs Retail: What Properties Do Real Estate Investors Buy?

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Where should you be looking for properties as an investor? Here’s the difference between BRRRR vs retail.

Sometimes beginner real estate investors buy the wrong properties.

BRRRR will never work in your favor unless you buy under-market.

Here’s a breakdown of BRRRR vs retail so you don’t make the same beginning mistake.

Buying BRRRR vs Retail

This is the basic concept behind real estate investing. There are two types of real estate properties:

  • Retail – When we think of a house as “on the market,” it’s a retail property. These houses sell at market price, a cost determined by current market conditions. In real estate, this includes supply, demand, location, interest rates, and a number of other factors.
  • Undermarket – Properties that might be considered “off-market” are sold at an under-market price. Something prevents the house from selling at market value as-is. The home is  outdated, damaged, foreclosed, or suffering from some other condition.

To break down exactly why and how BRRRR works, we need to look at the difference between buying retail and buying under-market as an investor.

Buying Retail with the BRRRR Strategy Doesn’t Work

The problem with buying retail as an investor is the house comes with no equity.

Let’s say you buy a property worth $400,000 (listed for that amount). With a conventional loan, the lender will cover up to 80% of the cost of the house. So you’ll need to put down 20%.

When you purchase the house and make the down payment, you’re transferring wealth, not creating it. You’re taking the money from your financial account and transferring it to the physical property.

So, you’ve moved $80,000 into the house, got a loan for $320,000, and created no additional wealth from the transaction.

There are three main disadvantages to retail properties:

  • The property may create cash flow or wealth in the future as a rental property, but no wealth is created from the purchase.
  • You’ll require money up-front (in this case, $80,000 plus closing costs).
  • You can only repeat BRRRR retail properties as long as you have the money to fund them.

Buying Under-Market for BRRRR

True BRRRR properties, however, solve all three of those problems retail properties have. A BRRRR property:

  • Creates equity & cash flow immediately (and over time).
  • Can be done with zero money down.
  • Is a repeatable process.

BRRRR is all about buying under-market properties – the houses that are unwanted and unloved. In this market going into 2023, a lot of these types of homes will pop up, resulting in some great deals.

BRRRR Purchase

There are certainly some nuances to BRRRR, but let’s look at the bare basics. Let’s take the same example used for the retail property.

You, again, buy a property with a value of $400,000. However, since it’s under-market, you can purchase it for only $250,000.

The catch is that the house isn’t necessarily worth the $400k as-is. The potential is there, but you’ll have to update and rehab it. Between those fix-up costs and the closing costs, you’ll have to put $50,000 more into the property.

So the total cost of the property ends up being $300,000, or just 75% of the value of the home.

Cost of the BRRRR Strategy

That 75% number is not only realistic but recommended for BRRRR properties. In down markets, it’s not entirely uncommon to see houses at 65% or below.

In this example, our all-in price (purchase + closing + rehab) is $300k, and the property is worth $400k.

Right away, we’ve created $100,000 in net worth.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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What Is BRRRR? 3 Simple Fundamentals to Maximize Cash Flow

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What is BRRRR? Here’s an intro to the most basic concepts.

BRRRR is one of the most powerful forms of real estate investing.

It’s not uncommon for people to retire, 10x their net worth, or become full-time investors with BRRRR.

Done wrong, though, BRRRR is a giant waste of time and money.

We want to help you have a positive experience with BRRRR. Getting BRRRR right is a matter of basic education. So let’s go over the 3 key fundamentals that explain: What is BRRRR?

What Is BRRRR?

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

What Is BRRRR Step 1: Buy

BRRRR is not a retail-buy strategy. The properties you get for a BRRRR need to be off-market and under-market.

There are several considerations that go into a “good” BRRRR property:

  • The rent you can charge has to create cash flow.
  • The appraisal during the refinance will need to create a profit.
  • The property needs to be desirable enough to attract great tenants.

BRRRRs are bought with “sweat equity.” This doesn’t just refer to the physical work you put into a home once you have it… It also applies to the work you have to put in before purchasing the property to ensure it’ll make you money.

What Is BRRRR Step 2: Rehab

For the rehab of a BRRRR, there’s a balancing act to make the project “rental grade.” On the one hand, you have to stay within budget. Rental properties take some wear and tear, so your updates should account for that.

On the other hand, you still want quality. Why? Firstly, because better properties attract better tenants. And secondly, because your refinance depends on the appraisal. To get a good appraisal value, the property must show quality work.

What Is BRRRR Step 3: Rent

A BRRRR property’s cash flow is largely dependent on the amount of rent you can charge. Be aware of the rent range you can realistically charge in your property’s location.

Knowing the rent will help tell you what updates you should make to the property. For example, if adding an extra bedroom would get you an extra $500 per month, it may be worth the construction costs.

You can estimate an area’s rents by going to Zillow, Rentals.com, or talking to local property managers.

What Is BRRRR Step 4: Refinance

Part of the BRRRR strategy is to use two loans. You buy with a short-term hard money loan, then refinance into a long-term loan after all the rehab.

To make the most money, you’ll want to set yourself up for a rate and term refinance rather than cash out.

What Is BRRRR Step 5: Repeat

The true secret to how BRRRR can create so much wealth is the repeat-ability of the process.

We recommend people getting into real estate investing to buy 10 BRRRR properties in 3 years, or 5 in 2 years.

How can you possibly afford to buy so much real estate in such a short amount of time? The right BRRRR properties require zero money down. If you were pulling from your savings for every down payment, you wouldn’t be able to get as far.

So, what is BRRRR? It’s a method for building an investment rental property portfolio that requires no money out of your pocket.

3 Factors that Ensure a BRRRR Success

After helping investors through the BRRRR process for over 15 years, we’ve seen 3 key factors that make these transactions successful.

1. Building a Team

The really good under-market BRRRR properties won’t just jump into your lap. These properties require a little digging, and – more importantly – a team to help you.

You’ll need to know wholesalers, real estate agents, other investors, and anyone else who can help you locate good undermarket properties.

(It’s also an advantage to keep lenders on your team so you can close fast on these great properties once you find them.)

2. The Money Side

“It takes money to make money.”

If you can learn the basics about the costs of your BRRRR projects, you can squeeze more money out of each project.

We always say that there’s money in the money. Do the research to learn about real estate before your first investment, and you’ll be miles ahead of other investors.

3. Using the Right Leverage

Yes, it takes money to make money, but it doesn’t have to be your money.

Plan for and understand the entire BRRRR process, and leverage can work to 10x your net worth.

Where To Go From Here

This only brushes the surface of BRRRR. Over the coming weeks, we’ll visit each of these topics in much more detail. Why do you use two loans? How can you do this with zero money down? How do you go about a refinance?

If you have a deal now you’d like us to look at for you, send us an email at Info@TheCashFlowCompany.com.

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