How do you really do this method, and what does BRRRR mean?
“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.
However, the catchy acronym over-simplifies this real estate investing strategy. What does BRRRR really mean?
Here’s an overview of the bare basics of the BRRRR method.
What Does BRRRR Mean #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.
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.
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.
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 Does BRRRR Mean #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 does BRRRR mean? It’s a method for building an investment rental property portfolio that requires no money out of your pocket.
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