From Buy to Refinance: How to Use the BRRRR Method for Successful Real Estate Investing & Growth

March 24, 2023

What is the BRRRR method in real estate investing?

The BRRRR method is a real estate investment strategy that involves buying a property, rehabilitating it, renting it out, refinancing it, and then repeating the process to accumulate more investment properties. This method aims to increase your rental income and build a portfolio of cash-flowing properties while also extracting equity from the properties to reinvest in additional properties.

Buying the Property

The first step in the BRRRR method is buying a property with the potential for appreciation and a positive cash flow. To do this, you need to find a property that is undervalued and in need of repairs. You can do this by searching for distressed properties or properties that have been on the market for a long time.

Rehab the Property

Rehabilitating a property means making significant improvements and updates to the physical structure and appearance of a property. This may involve renovations, repairs, and upgrades to the building facilities, appliances, and systems. Rehabbing can also include making the property more aesthetically appealing by adding curb appeal or updating interior design elements.

Renting the Property

Once the property is rehabbed, the next step is finding tenants and generating rental income. This involves marketing the property, screening tenants, and managing the property. You can either manage the property yourself or hire a property management company to do it for you.

Refinancing the Property

Once the property is rented and generating income, the next step is to refinance the property to extract equity. This involves getting a new mortgage on the property based on its increased value. The new mortgage should be enough to pay off the original mortgage and any renovation costs, leaving you with additional cash to invest in additional properties.

Repeat

The final step in the BRRRR method is to repeat the process with the newly available capital. This involves finding another property, rehabilitating it, renting it out, refinancing it, and then repeating the process over and over again to build a portfolio of cash-flowing properties.

The BRRRR method is a popular strategy among real estate investors because it provides a systematic approach to building a portfolio of real estate investments. Investors can create a self-sustaining investment stream that grows over time by using the cash generated from rental income and refinancing to purchase additional properties. However, the strategy requires careful planning and execution, as all steps must be completed successfully to ensure the investment is profitable.

Next, we’ve compiled the pros and cons of the BRRR method to help you evaluate if it’s for you.

Get In Touch With The Real Estate Investor News Team If You Want To Know More About Buying And Financing Investment Properties

The Pros & Cons of the BRRRR Method

Pros of the BRRRR Method

The BRRRR method has several advantages that make it a popular investment strategy for real estate investors:

Builds a Portfolio of Cash-Flowing Properties

The BRRRR method allows you to build a portfolio of cash-flowing properties by using the equity you extract from one property to invest in additional properties. This can help you build long-term wealth and passive income.

Increases Rental Income

By rehabilitating properties, you can increase their value and rental income. This can help you generate more cash flow and increase your returns on investment.

Creates Forced Appreciation

The BRRRR method creates forced appreciation by rehabilitating properties and increasing their value. This allows you to extract equity and reinvest it in additional properties, creating a compounding effect that can lead to exponential growth.

Reduces Risk

The BRRRR method reduces risk by allowing you to extract equity and reinvest it in additional properties. This can help you diversify your portfolio and reduce your risk exposure.

Cons of the BRRRR Method

While the BRRRR method has several advantages, it also has some disadvantages that you should be aware of before using it as an investment strategy:

Requires Capital

The BRRRR method requires capital to purchase and rehab properties. If you don’t have the capital, you may need to find investors or use creative financing to get started. And REI News can be your first step on the way to securing reliable investment funding.

Requires Experience

Rehabilitating properties requires experience and knowledge of the real estate market. If you don’t have experience, you may need to hire a contractor or a property management company to help you.

Market Fluctuations

Real estate markets can be volatile and unpredictable. If the market experiences a downturn, you may have trouble renting out your properties or refinancing them to extract equity.

Time-Consuming

The BRRRR method can be time-consuming, especially if you are managing the properties yourself. Finding properties, rehabilitating them, and managing tenants can take up a lot of your time and energy.

Tips for using the BRRRR method

Here are some tips to help you use the BRRRR method effectively:

Do Your Research

Research the real estate market in your area to identify undervalued properties that have the potential for appreciation and positive cash flow.

Set a Budget

Set a budget for each property’s purchase price, renovation costs, and rental income. Ensure you can cover all the costs and generate enough rental income to make a profit.

Use Experienced Contractors

If you are not experienced in rehabilitating properties, hire an experienced contractor to help you. This can save you time and money in the long run.

Screen Tenants Carefully

Screen potential tenants carefully to minimize the risk of non-payment or damage to your property. Conduct background checks and require references and proof of income.

Consider Property Management

If you don’t have the time or expertise to manage properties yourself, consider hiring a property management company to do it for you. This can help you avoid the headaches of managing tenants and property maintenance.

Summary

The BRRRR method is a popular investment strategy for real estate investors who want to build a portfolio of cash-flowing properties. It involves buying undervalued properties, rehabilitating them, renting them out, refinancing them to extract equity, and then repeating the process with the newly available capital. While the BRRRR method has several advantages, it also has some disadvantages, including the need for capital, experience, and the potential for market fluctuations. By following the tips outlined in this article, you can use the BRRRR method effectively and build long-term wealth and passive income.

And should you be inspired to invest in a property to follow the BRRRR strategy, then the first thing you need to do is contact our team at REI News to discover your funding options. We specialize in matching investors with affordable, reliable lenders, so talk to us today.

FAQs

Q: How much capital do I need to start using the BRRRR method?

A: The amount of capital you need will depend on the purchase price and renovation costs of the property you are buying. You may need to find investors or use creative financing to get started. It’s important to calculate your budget and make sure you have enough funds to cover all expenses, including the down payment, closing costs, repairs, and carrying costs until the property is rented out.

Q: Do I need experience to use the BRRRR method?

A: Rehabilitating properties requires experience and knowledge of the real estate market. If you don’t have experience, you may need to hire a contractor or a property management company to help you. It’s important to understand the local real estate market and the costs involved in rehabilitating a property before you start.

Q: How do I find undervalued properties?

A: Research the real estate market in your area and look for properties that have been on the market for a long time or need repairs. You can also check foreclosure listings or work with a real estate agent specializing in distressed properties. It’s important to conduct thorough due diligence on any property you are considering to make sure it’s a good investment opportunity.

Q: How do I screen potential tenants?

A: Screen potential tenants carefully by conducting background checks, requiring references and proof of income, and checking their rental history. You can also use a tenant screening service to help you evaluate applicants. It’s important to have a clear set of screening criteria and to follow fair housing laws to avoid discrimination.

Q: Do I need to manage properties myself?

A: If you don’t have the time or expertise to manage properties yourself, consider hiring a property management company to do it for you. This can help you avoid the day-to-day tasks of managing tenants, repairs, and maintenance. However, hiring a property management company will also come at a cost, so make sure to factor in the fees when calculating your potential returns.