The BRRRR Method | Buy, Rehab, Rent, Refinance, Repeat
What is the BRRRR Method? A Step-by-Step Guide to Investing in Rental Properties
BRRRR, which stands for Buy, Rehab, Rent, Refinance, Repeat, is a popular loan program among real estate investors. This financing strategy involves purchasing a property in need of repair, rehabbing it, renting it out, and then refinancing it to free up capital for additional investments.
BRRRR loan programs offer several benefits for real estate investors, including the ability to leverage their capital and build wealth through the acquisition of multiple rental properties.
There are five stages to the BRRRR method:
The Buy Stage: Finding and Financing Distressed Properties
The Rehab Stage: Renovating and Improving the Property
The Rent Stage: Finding Tenants and Generating Rental Income
The Refinance Stage: Accessing Capital and Repeating the Process
The Repeat Stage: Repeating the previous steps in the same sequence.
What is the BRRRR Process?
The BRRR process involves purchasing a distressed property at a below-market price, using a loan to fund the purchase, renovating the property, and then renting it out to tenants. Once the property becomes profitable, the investor can refinance it for more than the purchase price and use the surplus to purchase another distressed property. The process repeats, allowing the investor to create a cycle of property acquisition, renovation, and rental income. However, obstacles such as market fluctuations and changing interest rates can make it difficult to repeat the process indefinitely. Nevertheless, the BRRR method provides a lucrative opportunity for real estate investors with a keen eye for property.
Step 1: BUY
Discovering the perfect property can be challenging, but even after finding a suitable one, additional factors must be considered. For example, to make the BRRRR method successful, it's essential to work with distressed properties which are not typically inhabitable. As a result, obtaining a traditional mortgage for your property can be challenging, as it usually necessitates an appraisal or meeting specific requirements. Kings of Capital is dedicated in assisting you with achieving your real estate ambitions, and we are well-versed in the BRRRR method.
Step 2: REPAIR
Hiring skilled contractors during the renovation process is crucial to ensure that your recently acquired property is brought up to code and, most importantly, increases in value. Installing new toilets and upgrading the kitchen are some upgrades that can quickly enhance the property. However, it's also important not to go overboard. Remember, this is a rental property, so there's no need to overhaul the place completely. Instead, the goal is to make it appealing to potential tenants. Developing a realistic budget and timeline to work more effectively and transparently with your renovation team is also advisable.
Step 3: RENT
After making your property livable, you can begin renting it out. There isn't much to say about this step. However, it's essential to ensure that your tenants are reliable and pay their rent on time. Of course, the rent should be reasonably compared to similar housing options in the area while also generating monthly income for you.
Step 4: REFINANCE
Once you have renters and a steady source of income from your property, it's time to refinance. With the funds from the refinance, you can purchase additional distressed properties and repeat the process. However, before starting this step, ensure that your property is profitable. Lenders will not offer cash-out refinancing unless you can demonstrate that your property generates revenue. At Kings of Capital, we are more lenient with our clients than other lenders (not to brag, of course). If you have reached this stage of the BRRRR method, please contact one of our agents for more information on refinancing.
Step 5: REPEAT
In the "Repeat" stage of the BRRRR method, investors refinance their newly renovated and rented out property to free up capital to purchase more distressed properties. This stage involves ensuring that the property is profitable by having tenants and a steady source of income. Lenders require evidence of profitability before providing cash-out refinancing. The funds from the refinancing are then used to buy additional distressed properties and start the process over again, creating a cycle of property acquisition, renovation, and rental income.
Why should Real Estate Investors Choose the BRRRR Method?
The cyclical nature of the BRRRR method allows an investor to make passive income or increase their portfolio of properties. Unfortunately, these great positives come with some essential negatives to consider: the cost in both capital and time of repairing the property, generally higher risk associated with non-traditional mortgages, the possibility of a lower-than-expected refinance price, etc. In addition, the market volatility and interest rates should not be ignored either.
This method also requires patience on the part of the investor. Patience while your property is under repair. Patience while slowly trying to get the right tenants to rent your property. Patience while paying off your mortgage to one day refinance it. So the BRRRR method, as great as it seems in theory, requires much from investors. But if you’re still raring to go for it, we here at Kings of Capital are here for ambitious investors like you!
Contact us today, and see how we can help you accomplish your investment goals.
Building Your Real Estate Portfolio: Expanding Your Investments Through the BRRRR Method
One major advantage of BRRRR loan programs is that they allow real estate investors to purchase properties that may otherwise be out of their budget. By purchasing a property in need of repair, investors can often negotiate a lower purchase price and then use the rehab budget to increase the property's value. This increased value can then be leveraged to refinance the property and access additional funds for future investments.
Another benefit of BRRRR loan programs is that they can help investors build a rental property portfolio quickly. By leveraging the equity in their properties and using the cash-out refinance option, investors can access capital to purchase additional properties. This strategy allows investors to create a cycle of property acquisition, renovation, and rental income that can lead to long-term wealth building.
The BRRRR Method: A Recap of Its Steps and Benefits for Real Estate Investors
BRRRR loan programs can also offer tax benefits for real estate investors. The interest on the loan is tax-deductible, and the depreciation on the property can be used to offset rental income. Additionally, if the property is sold after being held for more than a year, any gains from the sale are subject to long-term capital gains tax rates, which are typically lower than ordinary income tax rates.
In conclusion, BRRRR loan programs can be an excellent financing strategy for real estate investors looking to build wealth through rental property investments. By leveraging their capital and using the equity in their properties, investors can quickly build a rental property portfolio that generates long-term passive income. Additionally, the tax benefits associated with these loan programs can help investors maximize their returns and minimize their tax liability