If you’re following sophisticated real estate investors online, you’ve probably seen the BRRRR strategy for real estate investing mentioned a fair bit over the last several years. The BRRRR method allows you to take a fairly small upfront investment and leverage it into an entire real estate portfolio comparatively quickly. So, naturally, everyone is talking about BRRRR!
BRRRR stands for a five-step process:
In this article, we’ll discuss each step to help you build your own BRRRR portfolio.
The trick to making smart real estate investments is to buy right. Most proponents of the BRRRR method suggest the usual 70%–75% maximum loan-to-ARV ratio. Getting a killer deal on the purchase means better profit margins and greater appreciation opportunity. Here’s an insider tip for getting the best deals: use a tool to find distressed properties (ones that have been neglected or may be at risk of foreclosure, for example). These distressed properties can often be purchased below market value, giving you a head start on your investment!
The next step is to rehab your new property. Using PropStream’s Rehab Estimator tool, you can get local cost estimates for labor and materials. Not only does this help you calculate more accurate estimates before starting your project, but it also gives you information for negotiating fair prices when working with local contractors and suppliers.
With your rehab complete, it’s time to rent out the property. One effective option for finding reliable renters is to take advantage of PropStream’s built-in marketing tools. With these tools, you can create a landing page for your property and even deploy online advertisements to reach your target market.
Refinancing is the special ingredient that makes the BRRRR method brilliant. Once you’ve rehabbed the property and have steady renters, you want to do a cash-out refinance to get your initial investment back in your hands so you can repeat the process with a new property.
To make the BRRRR strategy for real estate investing work, you need to find a lender who will:
- Offer cash-out refinancing for investment properties.
- Allow a refinance based on the appraised value (as opposed to the amount you have invested in the property).
- Give you a short seasoning period. The seasoning period is the amount of time you must own the property before you can refinance. Ideally, you want to find a lender who will allow you to refinance as soon as the property is rehabbed and rented.
A cash-out refinance allows you to leverage your initial investment in this first property toward a down payment for a second property.
With the cash from your refinance, you now have the funds in hand to invest in a second property. So you’ll repeat the first four steps (buy, rehab, rent and refinance) on your second property. When you refinance your second property, you’ll have the seed money to purchase your third investment property, and so on.
The BRRRR strategy for real estate investing is perfect for the investor who wants to turn a relatively small upfront investment into an entire real estate empire. You just need to make sure you have the tools to buy right, accurately estimate your rehab costs, and find quality renters to keep your investment machine generating income.