Learn more about this investment strategy, and if it’s the right choice for you
The BRRR method stands for “buy, rehab, rent, refinance, repeat.” This investment involves purchasing a property, upgrading it and renovating it, renting it out, refinancing it, and then repeating the process all over again with a new property.
This investment method stands out because it focuses on purchasing properties that could benefit from rehabilitation projects and because it focuses on refinancing the property in order to purchase another one.
Continue reading to learn more about this investment strategy and if it’s right for you.
How does the BRRRR method work?
This strategy is meant to help investors build a passive income over time through multiple investment properties. There are five steps to this investment strategy.
- Buy. This is the first step in this investment strategy and can ultimately determine how successful the outcome is. Once you’ve done adequate research, you’ll know what to look for and where. In this stage, many investors will turn to the 70 percent rule, which estimates the cost of repairs and after repair value. This can help you to determine what your maximum offer for the property should be. This way, you can ensure that a profit margin will remain after renovating a property.
- Rehab. During this stage, you will make any repairs or upgrades that you see fit. Upgrades and renovations can help add value to the property, allowing you to set higher rent prices. Some common updates that help you set a more competitive price include upgrading bathroom and kitchen fixtures and well-kept landscaping. Throughout this stage, it’s important to do an in-depth cost benefit analysis to ensure you’re on track.
- Rent. This is the step where you will set the rent price and find tenants. You will likely screen and select tenants and manage any vacancies you may have. It’s important to find high-quality tenants who pay their rent on time so that your renovations and upgrades pay off.
- Refinance. Once you’ve begun to rent out your property, you can start to create a plan to refinance it. By having renters already renting out your property, banks are much more likely to approve refinancing. It’s important to know what your bank’s seasoning period is. A seasoning period is how long you must own the property before your bank considers refinancing it.
- Repeat. Now that you’ve successfully purchased and refinanced an investment property, it’s time to repeat the process for a second property. Each time you go through the BRRRR method, you’ll learn more and become a more experienced and successful investor.
What are the pros and cons of the BRRRR method?
Any investment strategy will have advantages and disadvantages, and it’s important that you’re aware of each before you decide to use this method.
Some of the pros of the BRRRR strategy include:
- Passive income: The BRRRR method can bring you a high return on investment. When an investor properly uses this method, they’re able to purchase a property for an affordable price, do some repairs and renovations, and then rent it out at a higher rate.
- Expanded portfolio: The last step of the BRRRR method is to repeat, and by repeating this method many times, you are enhancing and building your real estate portfolio.
- Quality tenants: If you have done adequate upgrades and repairs that are currently in demand, you will find good tenants that pay their rent on time and in full.
There are also some cons to this method that you should consider:
- Expensive loans: Banks may have higher interest rates for investment rental properties than for a mortgage because lenders believe it’s more likely for you to pay off debt on your home. You should ensure that you secure the lowest rates possible and choose a loan that is flexible enough for your priorities.
- Waiting periods: This investment strategy can have a longer time frame. The rehabilitation stage could take some time depending on what upgrades and repairs you have planned. You will also have to wait out the seasoning period as determined by your bank.
- Extensive rehabilitation: Large rehabilitation projects can quickly become expensive. It’s critical that you have thoroughly planned all renovations and that you have the right resources.
Who should use the BRRRR method?
This investment strategy can be very rewarding for investors who want to be involved from start to finish. The BRRRR method can help you build an extensive portfolio while earning a steady, passive income.
The rehabilitation step may not be for everyone, so it’s important to consider whether you’re comfortable and willing to take on renovations and repairs.
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