I learned about the coined term BRRRR (Buy, Rehab, Rent, Refinance, Repeat) after I started diving deep into content on BiggerPockets.com. After listening to their podcast and reading through multiple forums, I realized I already have done the BRRRR method with our live-in flip that I write about in The Full Circle House post. After we rehabbed the property and decided to rent it out, we decided to do a cash-out refinance. We were able to cash out around thirty thousand dollars because of the built-in equity after rehabbing our property. We then used this cash as a down payment on our next primary house. After realizing I already did one BRRRR successfully, I used that experience and additional education to use the BRRRR strategy to grow our rental portfolio in Indianapolis, IN.
So many people are interested in investing in real estate but “someday” themselves into never getting started. One reason that I hear a lot is “I don’t have the money to invest in real estate!” While it can be helpful to start with at least the downpayment for your first investment property, I’m happy to report that it’s not always necessary to continue pumping cash into your real estate portfolio after that initial investment! Provided you’ve bought the right property that is.
One of the best ways to get the cash flow you need to buy your 2nd property and beyond is called the BRRRR Method. This is what I used to get into real estate investment and I’m here to tell you how it’s done.
Buy
Rehab
Rent
Refinance
Repeat
BUY
Searching for an investment property is a bit different than shopping for a primary residence. There are some basic rules of thumb that can tell you if a listing is worth pursuing further. The 1% (or 2%) rule states that the property should produce at least 1% of the purchase price in rent each month. Some investors like to shoot for 2% but this depends on the market in your area. You should analyze not only the rental potential of the home, but the value that you will be able to add through renovations.
REHAB
Depending on the condition of the house, there may be some renovations necessary to even receive financing such as roof or structural repairs. After these safety concerns are considered, you can look at what else will be required to bring the home up to the condition that will warrant the amount of rent you plan to charge. Focus on high impact projects with a good return on investment such as kitchen and bathroom updates. Landscaping can offer an awesome return on investment since it’s likely work you can do yourself for little or no cost. These are all updates that potential renters will love to see and that will help the home appraise higher in the next step of the BRRRR process.
RENT
You’ve done the hard work of finding just the right property and renovating it into a lovely home, ready for its next chapter. What’s left to do but find someone to live in it? You may choose to use a property manager, or to manage the rental yourself. This is where your work up until now will be put to the test. If your calculations were correct you should be receiving lovely cash flow that exceeds your mortgage payment and other expenses.
REFINANCE
Next, you will do a cash-out refinance on the property. This is what sets the BRRRR method apart and allows you to continue to expand your real estate portfolio without the need for continuous cash investment. Your renovations should have increased the value of the property. With a cash-out refinance you don’t have to wait until you sell to access that equity. Now you have cash flow that exceeds your expenses for the home and an infusion of cash that will help you secure the next property.
REPEAT
That brings us to the last “R” – Repeat! One of the awesome things about this method is that it builds on itself, allowing you to continue to invest and increase your portfolio exponentially.
Each time you repeat this process you’re sure to do a few things differently to make the process smoother and more profitable. And remember, just because this process CAN be repeated indefinitely doesn’t mean you have to end up with a real estate empire. Even if you want one or two properties this method can work for you. Unlocking the cash from the home makes it available for other investments, real estate or otherwise.