How Does The BRRR Strategy Work?
In general, the BRRRR method is a real estate investment strategy that involves several different steps. At odds with a conventional real estate investing strategy, the BRRRR method hinges on investing in beleaguered properties, flipping them, and then refinancing these distressed properties in order to buy more rental properties in turn.
If executed properly, this investment method can help you provide ongoing passive income. Likewise, it can also create a running means of purchasing and owning bigger and better rental properties. To successfully apply the BRRRR method, you’ll need to:
Buy: Purchase a beleaguered property that requires significant tender loving care and work in order to be brought up to code and made ready for rental. For example: A good property for application of the BRRRR method might be a distressed single-family home that’s undervalued and (while structurally sound) in need of general rehabbing, cosmetic upgrades, and a little TLC. Homes that are in a distressed condition and have lost considerable value but hold the potential to regain significant value with a DIY overhaul may make good candidates for purchase by BRRRR method investors.
Rehab: Next, as the property is in less than ideal condition, you’ll need to complete any necessary renovations to increase the value of the dwelling – noting that some homes may need more extensive repairs than others. As part of this step, you’ll effectively renovate the apartment, duplex, home, or condo to give it desired aesthetic upgrades, bring its structural and safety elements up to code, and otherwise make it inhabitable for renters.
Rent: Following a complete overhaul of your property, you’ll want to decide on a rental price and look for renters to move in. When hunting for prospective tenants, it’s important to seek out individuals with a strong credit history, steady employment, and solid track record of timely bill payment. As a property owner, running background and credit checks can help you as you work to thoroughly screen potential tenants.
Refinance: Afterward, you’ll want to refinance the property. Put simply, that means using a cash-out refinance (which lets you convert equity in the home into cash) to pay off the original home loan. Essentially, here you’ll be taking out a larger mortgage by borrowing more money than you owe under your current loan – money that you can then use to purchase another property.
Repeat: Finally, using the proceeds of your cash-out refinance, you’ll then make a down payment on your next investment property and start the process all over. In other words, the final step of the BRRRR method sees you taking monies received from the prior step’s cash-out refinance and purchasing another distressed property before renting it out and refinancing again.</…….