Are you looking to invest in real estate and are overwhelmed by all of the investment advice that is out there? With so much to sift through it can be hard to determine what the best approach is. One of the longest methods of investing is the BRRRR method. This stands for buy, rehab, rent, refinance, and repeat. You have probably heard of this in passing. So, how does this work exactly, Let’s dive deeper.
Using The BRRRR Method
The BRRR method is an investing strategy used often in real estate. It is used to buy an investment property without leveraging a lot of your own money. The goal is for you to create several streams of passive income using this process. It stands for the following:
- Buy: Find a great deal on a rental property and buy it
- Rehab: Fix up the property
- Rent: Find tenants and rent the property
- Refinance: Get a loan that covers the purchase price plus the repairs
- Repeat: Use that money to buy another property and do it again
How Does The BRRRR Method Work?
When you purchase any property and fix it up to improve its value and then refinance it, you are borrowing against the value of the property. This means that if you do this correctly you can get more out of what you initially invested. Let’s jump into the action steps of this investment strategy.
You will first want to buy the right property. Most good investments come from a good starting point which would be a wise purchase. There is a lot that goes into this. You want to take a look at the location and ROI. Consider how you are going to buy. Are you using cash, a loan, seller financing, or a private loan? Deciding what your upfront financing looks like will be a big part of the overall purchase decisions. If you are using this method you want to make sure you don’t pay too much for the property in question because you will want to renovate and still come out with money in your pocket.
When you look at a property you have to consider what it is going to take to make it more livable and functional for renters. Will this rehab add more value to the home over the cost of the project itself? When you do rehab the property you want to use materials that increase value. Consider things like granite countertops and high-end stainless steel appliances. When you purchase your investment it won’t be in the condition you want it in. Take a look at all of the major components that come with a high cost of repair to see if the property is worth the initial investment and time compared to what the financial outcome can be. Look for issues with roofs, kitchens, drywall, and foundation, which can all be top-dollar fixes.
you must be able to get tenants into your rental quickly. Banks do not like to refinance a rental property that is not occupied. Make sure you screen all of your tenants diligently. If the refinancing part of this investment needs an appraisal you need to notify your tenants ahead of time ad be respectful of the contract you have in place for them. Using the BRRR may come with a higher mortgage because you are borrowing more money against the house. This can work because you will grow wealth with capital in the banks each month. If you want to have a better understanding of a property’s potential positive cash flow then you should use the 1% rule. This means that you can rent the property for 1% of what you bought it for.
Refinancing is a crucial part of this process. Make sure you establish great relationships with the bank and shop around. You may have to wait for some time before you can refinance. Be careful to not sink a lot of capital into the deal. You want to get as high of an appraisal value as possible to have success.
The repeat part of the BRRRR method is the best stage to be in. This means you have completed your first go and you are ready to take what you have learned and improve upon it while starting the whole process all over again.
For more information on buying, selling, or investing in Mesa, AZ, contact me. I would be happy to assist you with all of your real estate needs.