PROPERTYSPARK ARTICLE
What Is The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Method in Real Estate?
Real estate investments are one of the best ways to build wealth. It’s easy to get started with real estate investing, but people looking to build a lucrative, income-generating portfolio will need to know where to start. The BRRRR method, which stands for buy, rehab, rent, refinance, and repeat, provides an easy-to-follow framework that blends some of the most common types of property investment. This blog post will break down each part of the BRRRR rule to help you take your investments to the next level.
How the BRRRR Method Works & Why You Should Use It
BRRRR stands for “buy, renovate, rent, refinance, and repeat.” This strategy can be used to build equity and generate income from rental properties. The rule helps investors simultaneously reap the benefits of property value appreciation and rental income while keeping expenses low.
Investors start by purchasing a property below market value. The property is then renovated to increase its value. Next, the investor will rent the property and use the monthly income to make mortgage payments. Once the property has been rented for a while, the investor can refinance and take cash out of the accumulated equity. The cash-out refinancing can be used to repeat the process.
The BRRRR method is a powerful tool that can be used to exponentially boost your real estate portfolio. While the big picture is relatively straightforward, each step of the BRRRR rule requires careful planning and strategy.
Buy: How to Find Find Under-Valued Houses
The first two steps of the BRRRR rule will be familiar to anyone who has made a profit from flipping houses before. You’ll need to find an under-valued property and fix it up.
There are many factors to consider before buying your first investment. One way to find good deals is to look for properties that have been on the market for a while. If a property has been languishing on the market, it could have structural or cosmetic issues that will help you negotiate a lower price.
Another way to find undervalued real estate is to look for properties that have recently undergone foreclosure. Foreclosed properties can often be bought at a discount. Similarly, keep an eye out for short sales. Short sales are homes that have declined in value and are offered for less than what is owed on the existing mortgage.
Rehab: How to Choose Valuable Home Upgrades
Once you’ve found an undervalued property, it’s time to start planning your renovations. Not all home upgrades are created equal. You’ll want to focus on projects that will add the most value to your home without racking up too many expenses.
Since you will be renting the property, your first priority should be to upgrade any issues that would legally prevent you from housing tenants. A few examples of building code violations that need to be upgraded before renting include:
- Replacing faulty or outdated electrical systems
- Rehabbing an old roof
- Adding adequate insulation
Once you’ve covered all the essentials, you can focus on home improvement projects that will help you rent your property out for higher monthly rates. Upgrades that enhance the day-to-day quality of life for your tenants can pay for themselves relatively quickly.
Rent: How to Earn Money As a Landlord
Once your property is up to code and rent-ready, it’s time to find some tenants. There are several ways to go about this.
It’s important to take the time to find the right tenants. That means screening potential renters carefully to ensure they meet the financial criteria for moving in. Here are some tips for finding tenants for your rental property:
Start by advertising your rental in the right places. You want to make sure potential tenants know about your property and have a way to get in touch with you. Rental applications, credit checks, and background checks are a few of the most common ways to find the right match for your property.
It’s also a good idea to meet potential tenants in person before making a final decision. This allows you to get a feel for whether they would be a good fit for your property.
Once you’ve found a tenant, it’s time to set your monthly rental rates. First, research rental rates for similar properties in your area to get an understanding of your earning potential.
Some landlords like to charge 1% of the property’s total value per month. Therefore, a home purchased for $300,000 could be rented out for $3,000 per month. This rule is a good starting point, but can be hard to rely on. Don’t forget to factor in any extra costs that come with being a landlord. Maintenance, repairs, and property taxes are all things that need to be considered when setting your rates.
Refinance: How to Cash Out Your Equity
Refinancing your mortgage is the next step in the BRRRR method. There are several ways to refinance a mortgage, but the BRRRR rule focuses on cash-out refinancing.
Cash-out refinancing allows homeowners to borrow amounts equal to their home equity. Therefore, someone who’s paid off half of a $350,000 mortgage can borrow approximately $175,000 to use for any purpose. Cash-out refinancing brings you to the final and most powerful step of the BRRRR investing method: repeat.
Repeat: How to Snowball Your Success With the BRRRR Method
After cashing in on the equity of your first rental property, you can use those funds to purchase a new home and start the entire process from square one. Financing your next real estate investment with the equity from your first investment allows you to grow your portfolio while still earning passive income from rent. When done correctly, each subsequent BRRRR investment can be more lucrative than the last.
Invest Smarter With The BRRRR Method
The BRRRR Method is a tried-and-true investment strategy that can help you build your portfolio faster and multiply your rental income with less risk. By following the simple steps outlined above, you can enjoy the perks of numerous investment strategies. So what are you waiting for? Start investing today!
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