Everything About The BRRRR Method Real Estate Investment

By: ROS Team

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BRRRR is a clever acronym for Buy, Rehab, Rent, Refinance, and Repeat. It is a real estate investment technique that has been used for decades and is still as relevant as ever. It became very popular because it offers high flexibility and requires little to no money to start.

The BRRRR strategy came around in the 1980s when it was introduced by Robert Allen in his book “Nothing Down.” It became popular due to its simplicity and the fact that it doesn’t require much cash from the investor.

The process starts with buying a property at the best possible price. The investor then renovates the property and rents it out to generate income. He can then refinance the loan and repeat this process until the mortgage balance is reduced to a certain level.

Let’s understand everything about the BRRRR method of real estate investing.

What does BRRRR Stand For? The BRRRR Meaning

The BRRRR method is a real estate investment strategy, and the acronym stands for Buy, Rehab, Rent, Refinance and Repeat.

This strategy is often used by investors who want to make their money work as much as possible. The process starts by buying a property at an affordable price and then fixing it to rent it out to tenants who are willing to pay more than 1% in rent of what you bought it for in the first place.

It’s important to remember that the BRRRR method is not a one-time thing. It’s an ongoing process of buying properties, repairing them, and renting them out until the property can be refinanced to make more profit.

Let’s Focus on the Steps of the BRRRR Method:

1) Buy: This is where you purchase a property at a discounted price.

2) Rehab: This is where you fix up the property to make it livable.

3) Rent: This is where you rent out the property to tenants so that you can generate rental income.

4) Refinance: Refinance the home, take out a new loan with a lower interest rate and pay off the old loan.

5) Repeat: Repeat this process every 3-5 years to save money on interest. The goal is to get as close as possible to 0% interest by repeating this process over time.

How does The BRRRR Method Work?

This strategy aims to buy low-priced properties with the potential for high returns on investment.

Once your tenants start paying you more than your monthly mortgage, you can use the excess money to refinance and get a better interest rate with a new loan or line of credit.

You can then repeat this process until you have enough equity built up in your properties to be sold off and provide enough income to retire.

BRRRR Method Work
Photo Credit: Canva

Buy:

The first step is to buy the property. It’s important to make this investment slowly because it will be worth the wait if you wait for a bargain.

You need to find an investment property that fits your budget and needs. Start by looking for a mortgage broker who will be able to help you with this. They will give you a list of available properties on the market and their prices.

When narrowing down your search, keep in mind that different factors may affect the price of a property, such as location, size, or condition.

Once you have found a suitable investment property, it is important to ensure it is priced right for its offers. This means there might be cases where it makes more sense to buy an apartment for $250 000 instead of one for $300 000 because it has more bedrooms and bathrooms.

Rehab:

When renovating a property for sale, it needs to be in the best condition to attract buyers. The most common renovations are painting, repairing, and installing new flooring.

Property investors must also keep the property clean and tidy throughout the process and should also be well-presented with items like flowers and plants. With all these improvements, the property will be ready for sale or rent in no time!

Rent:

Renting your property is a great way to make money and maintain your cash flow. You can rent it out for the weekend, weekdays, or even months at a time.

The location is one of the most important factors in determining how much you can charge. If you live in an expensive city like New York City, you can charge more than someone who lives in Kansas.

Another factor determining rental rates is how well-maintained and furnished your property is. A well-maintained property with all the necessary amenities will be able to charge more than a poorly maintained property with no amenities.

Here are some things that you need to look out for when renting out your property:

– Find a suitable tenant and sign an agreement form
– Make sure that the rental price is fair and in line with other properties in the area
– Check if there are any specific neighborhood rules or regulations
– Ensure that you have all the necessary documents signed by both parties

Refinancing:

Consider refinancing your mortgage if rates are low enough to make it worth it. This will give you more cash to put towards a down payment or other costs of homeownership like repairs or renovations.

Refinancing your property is also a way to reduce the interest rates on your mortgage. It can also be used for various other reasons, such as consolidating debt, getting cash out from the equity in your property, and improving your credit score.

Repeat:

Rent out the property while waiting for your opportunity to resell at a profit in the future when prices have gone up. You can make more money by repeating this process again and again.

This means that you can own many properties at the same time and make money from them all.

Pros Of BRRRR Investing In Real Estate

It is an ideal way to diversify your portfolio. You can use the cash flow from the property to help you with other investments, or you can use them for your expenses.

The main advantage of this technique is that it provides good returns on your investment. It can take one to three years for your property to appreciate, so you will have time to collect rent from tenants during this period. Besides the returns, it also provides capital gains tax advantages and more time to find the best deals on properties.

The BRRRR method also provides more options when refinancing the properties since you have more property equity than if they had just bought it with cash.

More importantly, the investor can use this leverage to buy more houses than they can afford with cash.

Cons Of BRRRR Investing in Real Estate

The cons of BRRRR are the time, effort, and money it takes to ensure the property runs smoothly. You have to hire a property manager, do maintenance, and ensure everything is going well with the tenant. These also incur additional costs like insurance and maintenance.

It is seldom a stable investment option because the property’s value can fluctuate drastically in short periods of time. The people who invest are usually not diversified and are, therefore, more vulnerable to downturns in the market. Also, it does not provide tax benefits for those who do not itemize their taxes.

The most significant problem with the BRRRR strategy is that it needs to work better for those with limited funds. Suppose an investor can only afford to buy one property and wants to take advantage of this investment method. In that case, they will need help finding affordable and worth-buying properties.

To make matters worse, finding a property with low risk and high return is challenging. This is the only way around this, especially if you want to buy properties that have already been appreciated and are worth more than what you are paying.

Finally, it can be hard in real estate to sell a property at a profit if you need cash quickly or in an emergency like job loss, illness, etc.

The BRRRR Method of Real Estate

Real estate is a lucrative investment if done right. The BRRRR technique is a tried and tested formula that has worked for numerous investors generating millions in cash flow. With the techniques discussed in this article, you can start a real estate portfolio with little to no money.

However, it has its downsides, and you must not put all the eggs in one basket. As an investor, you must diversify and keep some easy-to-liquidate investments in your portfolio for a rainy day.

FAQs: BRRRR Method Of Real Estate Investment

What is the 1% Rule in BRRRR?

When using the BRRRR strategy, your monthly rent should be at least 1% of the cost of purchasing your property. If you have $100,000 invested, you should get $1000 in rent from that property.

Is the BRRRR Method Worth It?

The BRRRR method is a popular investment strategy. The idea behind it is to buy real estate to diversify your portfolio. Although this method has been criticized for its high risk and low return potential, It’s worth noting that the BRRRR method is not a get-rich-quick scheme. It’s meant as a long-term investment strategy.

How much money do you need to do the BRRRR Method?

The amount of investment in the BRRRR method can vary, ‘you can do it with $5,000’ or ‘$50,000’. Does it depend on a few factors such as your desired rate of return? What is the size of your down payment? What kind of properties are you looking for? How much are you willing to spend on the property?

Is the BRRRR Method Risky?

The BRRRR method of real estate is a low-risk strategy because you are investing in real estate, and it seldom moves down in value. Traditionally, properties have always been an appreciating asset. You can make more money by using this technique as opposed to flipping houses.

What is the 2% Rule in Real Estate?

The 2% rule in real estate states that the rental income from the property must be at least 2% of the property’s total purchase price. If you buy a property worth $1,000,000, the total rent must be equivalent to $20,000/month. You can also use a BRRRR calculator for other statistics.

Can you BRRRR with a Mortgage?

Yes, you can use BRRRR loans with a mortgage. Suppose you have an existing mortgage on the property you will buy. In that case, you can use your home’s equity to get cash out of it by refinancing your current loan and taking out a new loan to purchase another property.