BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investing strategy in which an investor buys a property, renovates it, rents it out, refinances the property for its new appraised value, and then repeats the process for new properties.
This method allows investors to leverage the equity of one property to purchase additional properties.
The BRRRR method is an essential strategy in real estate investing for several reasons. Primarily, it allows investors to create a perpetual cycle of investing, essentially maintaining the potential for continuous returns.
Investors buy a property, usually below market value, then increase its worth through repairs and upgrades.
Once it's rehabilitated, they rent it out to gain income. Refinancing with a mortgage allows them to take out the invested capital, which they can use to buy another property and repeat the process.
The BRRRR method is crucial because it provides a structured and efficient method for maximizing return on investment while potentially growing an investor's real estate portfolio.
We encourage you to use our calculator below if you're interested in exploring this investment strategy. It is a valuable tool for calculating the potential return on investment when using the BRRRR method on a property of interest.
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The Buy, Rehab, Rent, Refinance, Repeat (BRRRR) method is a popular strategy in real estate investing that allows investors to maximize their return on investment by leveraging their existing rental property investments.
Named after the five steps involved in the process, the strategy involves purchasing an under-valued property, improving it through cost-effective rehabilitation, renting it out to tenants at a higher rate, and then refinancing to recover the initial investment capital.
The recovered funds can then be used to repeat the process with new properties.
The primary purpose of the BRRRR strategy is to create a cycle of investment that lets an investor grow their real estate portfolio without needing to input large amounts of their own capital continually.
By enhancing the value of the properties through targeted renovations, investors can increase the rental yield and the property's overall value.
The refinancing step allows real estate investors to extract the equity created through this value increase, which can be reinvested into the next project.
Thus, the BRRRR method provides a self-sustaining model for continual real estate investing.
Here are three real-world examples:
An investor may buy a run-down property in a good neighborhood at significantly less than market value. After purchasing the property, the investor will rehab the home, updating the kitchen and bathrooms and improving the curb appeal.
Once completed, they will seek to rent the property out, charging fair market rent. Following a successful appraisal, they may refinance the property with a long-term loan and pull out most of their initial investment.
A real estate investor purchases a multi-family property. The property is in dire need of repair, so the investor puts in some sweat equity and possibly hires a contractor to bring the property back to life. After the renovation, the investor rents out all the units, generating a steady income stream.
After a period, they refinance to recoup their initial investment and continue the process with the next property.
An investor spots an excellent deal for a small commercial property. They buy and rehab the property, then lease it to a local business. After the business is thriving and the investor is receiving regular rent payments, they refinance the loan using the increased value of the property.
They now use this surplus capital for the next deal, repeating the process.
In all of these cases, the BRRRR method allows real estate investors to recycle their initial investment across multiple properties, expanding their portfolio without needing enormous amounts of capital.
While similar, the BRRRR method has some key differences compared to traditional real estate investment strategy.
Traditional real estate investing typically involves purchasing a property to generate rental income or sell it for a profit.
Here are some characteristics of traditional real estate investing:
The buy and hold strategy involves purchasing a property with the intention of holding it for an extended period, typically to generate rental income and benefit from long-term appreciation.
Key features of this approach include:
Flipping involves purchasing a property below market value, renovating it quickly, and selling it for a profit. This strategy requires active involvement and a keen eye for identifying undervalued properties.
Key aspects include:
Real Estate Investment Trusts (REITs) allow investors to own shares in a professionally managed real estate portfolio. This option provides diversification and passive income without the need for direct property ownership.
Key considerations include:
Investors can pool their funds with others to invest in real estate projects through the use of real estate crowdfunding platforms. This approach offers opportunities to access a broader range of real estate investments with lower capital requirements.
Key features include:
Partnering with other investors or individuals can be an alternative to the BRRRR method. This approach allows you to pool resources, share responsibilities, and invest in properties collectively.
Key considerations include:
Finding distressed properties for the BRRRR method requires a combination of research, networking, and strategic approaches. Here are some methods you can use to locate a distressed investment property:
Utilize online real estate listings and platforms that specialize in distressed properties.
They provide information on foreclosures, bank-owned properties, and properties sold at auctions.
Develop relationships with real estate agents who specialize in investment properties or distressed sales. They may have access to off-market deals or be aware of properties in pre-foreclosure or short-sale situations.
Similarly, wholesale investors can provide leads on distressed properties they have sourced.
Create targeted direct mail campaigns or marketing materials to reach out to distressed property owners. This can involve sending letters or postcards to owners in pre-foreclosure, tax delinquency, or those with expired listings.
Clearly communicate your intent to purchase and offer solutions to their distressed situation.
Research public records, such as tax records, to identify properties with delinquent taxes or liens.
Contact the local government offices responsible for tax collection or property assessments to inquire about distressed properties or upcoming auctions.
Attend local real estate networking events, join investor groups, and establish connections with other real estate professionals.
Networking can lead to referrals and insights into distressed properties that may not be widely known.
Physically drive through neighborhoods or target areas looking for signs of distressed properties. Look for signs of neglect, overgrown yards, boarded-up windows, or vacant properties.
Take note of these properties and conduct further research to determine their status.
Use online resources and social media platforms to research distressed properties. Explore websites, forums, and social media groups dedicated to real estate investing or distressed properties.
Engage in discussions, seek advice, and inquire about potential leads.
Attend public auctions or short sales where distressed properties are often sold. These events may provide opportunities to acquire properties at discounted prices.
Research the auction process, rules, and procedures beforehand to ensure you understand the requirements and risks involved.
A1: BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It's a popular strategy in real estate investing where an investor purchases a distressed property, renovates it, rents it out, refinances the mortgage, and then repeats the process.
A2: The BRRRR strategy involves primarily five steps: you Buy a property at a discount, Rehab it to raise its value, Rent the property to tenants, Refinance to a long-term loan, and then Repeat the process with another property.
A3: Among the many benefits, the BRRRR strategy allows an investor to recycle their initial investment into multiple properties, build a portfolio without needing vast sums of capital, and potentially achieve significant capital growth and rental income.
A4: After rehabilitating and renting out the property, an investor can approach a bank or lending institution to refinance based on the new, increased value of the property. This could free up the initial investment to be used on the next property.
A5: While it's not a requirement to have extensive experience in real estate investing to use BRRRR, understanding the principles of property evaluation, rehabilitation costs, and property management is highly beneficial.
A6: Yes, like any investment strategy, BRRRR has potential risks. These may include unforeseen renovation costs, market risk, vacancies, or difficulty in refinancing if the renovated property does not appraise for the desired value.
A7: It's important to look for properties purchased below their potential market value, in a desirable location for renters, and those that require enough rehabilitation to increase their value significantly but not so much that the costs outweigh the benefits.
A8: Yes, the BRRRR strategy can be applied to both residential and commercial properties. However, most beginners start with residential properties due to familiarity and lower entry costs.