The B-R-R-R Method
The BRRR Method is a real estate investment strategy that involves the use of buying, repairing, renting, refinancing, and repeating. That extra R technically means that the BRRR method is actually the BRRRR Method but for the sake of convenience, it’s been left at 3 Rs.
BRRR stands for: Buy, Repair, Rent, Refinance.
What is the BRRR Process?
In summary, the process begins with the purchase of a below-market price property that is not consumer-ready. The investor takes out a loan to purchase the property, renovates the place, then rents it out to tenants. With its newfound profitability, the property now has a higher appraisal price, allowing the investor to refinance the property for more than he purchased it for. That surplus is then used to purchase another distressed property and the process repeats. Now at first glance, this may seem like a limitless way to make money. In reality, it isn’t. Obstacles like market fluctuations, changing interest rates, or fickle banks make this method nearly impossible to repeat forever. Nonetheless, the BRRR method still offers a lucrative opportunity for any sharp real estate investor with an ear to the ground and an eye for property.
Now finding the right property is difficult in its own right. But there are things you should consider even after finding one that works for you. For the BRRR method to work, you need to be working with distressed properties (i.e properties that cannot be used). As a result, it may be difficult for you to get your property a traditional mortgage, as these typically require an appraisal or the property needs to meet specific guidelines. But don’t let that discourage you! Hard money lenders like Kings of Capital were made to help you finance your real estate goals, and as it happens, we’re particularly familiar with the BRRR-R method.
When renovating your newly purchased property, be sure to hire professional contractors that can bring your building up to code and more importantly, add true value to your property, quickly. Install those new toilets, upgrade the kitchens, so on and so forth. But also, don’t overdo it. This is a rental property so you don’t need to be reinventing the place. Just make it so that potential tenants would actually want to live there. It’s also recommended that you create a realistic budget and timeline so that you can work more efficiently and honestly with your renovating team.
Once your property is habitable, you can start renting it out. There isn’t too much to say here. Just make sure your tenants are responsible and pay their rent in time. Obviously, their rent should be reasonable compared to proximal housing options but also be putting money in your pocket every month.
At this point, you want to refinance your property. With this new money, you can buy more distressed properties and repeat the process. Make sure before you start this step, you actually have tenants and a stable source of income from your property. Lenders will not provide cash-out refinances unless you can show them your property is profitable. Of course, we here at Kings of Capital are a little more lenient with our clients than competitive lenders (not to brag, of course). If you’re at this point in your BRRR method, contact one of our agents for more information on a refinance.
WHY SHOULD REAL ESTATE INVESTORS CHOOSE THE BRRR METHOD?
The cyclical nature of the BRRR method allows an investor to make passive income or increase their portfolio of properties. Unfortunately, these great positives come with some important 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. The volatility of the market and interest rates should not be ignored either.
This method also requires patience on part of the investor. Patience while your property is under repair. Patience while slowly trying to get the right tenants to rent out your property. Patience while paying off your mortgage to one day refinance it. The BRRR 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.