How to turn a profit using the BRRRR method.
Buy, Rehab, Rent, Refinance, Repeat. That’s the BRRRR method in a nutshell.
Many investors use this method to generate monthly cash flow and build a real estate empire. Following BRRRR is one of the best ways to build a rental portfolio with little to no money out-of-pocket.
Little to no money down for rental properties? How does that work? Here’s our 8-step guide to BRRRR.
1. Set Your Goals
The first step happens before you even look at a property. It’s important to sit down and think about what you want out of your real estate investing experience. Answer the following questions:
- Where am I in life now? Where do I want to be?
- Why do I want to invest in real estate?
- Where do I want to invest?
- How many properties do I want?
- How much cash flow do I want to generate?
Before you take any action, find your answers to all of these questions. This will show you where to start, how to go about it, and when to stop. You’ll get much more out of the BRRRR method if you stay aware of the process as it’s happening.
2. Search For Properties
Now, you can begin the hunt for the right properties. But you’ll need to know the right places to look.
BRRRR projects require undermarket properties. You won’t find these on the MLS, or through many traditional realtors. Undermarket properties are found by wholesalers, investor-friendly realtors, or other real estate professionals.
For advice on getting these off-market, discounted properties, read this post from Hard Money Mike.
3. Get Long-term Loan Approval
Before you buy a house, meet with banks about a long-term loan. You’ll want to find the maximum loan amount you qualify for. This becomes important later in the process when you’re maximizing your refinance.
Once you have pre-approval for this loan, you can move forward with the undermarket property you found.
4. Buy with a Short-term Loan
Undermarket properties have fast closings. Once you find a property, you’ll only have a couple days (or a couple weeks, max) to close the deal. As a buyer, the key to a fast closing is a short-term loan.
Once you close on the property, you can begin rehab.
For this step of a BRRRR project, it’s important to strike a balance. An undermarket property will require a lot of repairs, but since it’s not a fix-and-flip, you don’t have to go “all out.” It will be a rental, so you’ll want to make it appealing for tenants. But at the same time, you don’t want to go overboard and lose money on the project.
A good guide for how much money and effort to put into the rehab of a BRRRR is the ARV, after-repair value. You should always renovate enough to meet the ARV.
After rehab, your property is ready to rent. Find a trustworthy, reliable tenant, and then we’re at the exciting part – you start earning cash flow!
Short-term loans are expensive, so don’t get trapped in yours. You’ll want to get in and get out of the hard money loan at your first opportunity. Refinance the long-term loan in order to get the short-term loan paid off ASAP.
Now, with a cheaper loan payment and a tenant, you’re on your way to wealth!
At this point, you’ll want to consider the goals you outlined in the first step. You can repeat this process until you’re happy you’ve met your goals.
For More Information
Hard Money Mike can help you get started on your BRRRR journey.