Real estate investing is one of the most popular ways to build wealth and achieve financial freedom. One of the most effective and proven methods of real estate investing is the BRRRR strategy.
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It’s a cycling process that allows investors to build their portfolio and keep properties long-term for cash flow. In this article, we will dive deeper into the BRRRR strategy, its benefits, the potential risks, and how to get started.
What is the BRRRR strategy?
The BRRRR strategy is a real estate investment method where the investor acquires a distressed property, rehab it, rent it out, refinance the loan, and the repeat the process with the profits built up from the previous investment. It enables real estate investors to increase cash flow, improve their return on investment (ROI), and scale their portfolio.
Benefits of using the BRRRR strategy
Increased ROI: The BRRRR method can offer investors increased cash on cash returns because once the property is rehabbed and rented out, the refinanced loan amount should exceed the initial investment.
Long-term cash flow: The property can be kept long-term, which generates rental income, which in turn strengthens the cash flow of the investment.
Portfolio expansion: The process can be repeated as many times as possible. At each cycle, the investor adds another property to their portfolio, which increases their passive income stream.
Increased equity: The BRRRR strategy can help build equity even while renting out the property. A property that has been rehabbed can appreciate significantly, which can lead to increased equity.
How to get started with BRRRR?
Below are the steps to follow to get started with the BRRRR strategy:
Step 1: Find the right property: The first step is to find a property that is below market value and needs rehabilitation – a distressed property. Look for a property in an area where there is high demand for renters.
Step 2: Rehabilitate the property: The second step is to repair and remodel the property. You can hire a contractor to help with the remodeling or you can do it yourself to save money.
Step 3: Rent out the property: Once the repairs and remodeling are complete, the property can be rented out. Ensure that the tenants are screened to find qualified renters.
Step 4: Refinance the loan: The next step is to refinance the loan. This allows the investor to get back the initial investment put in and increases the cash flow. It is important to work with a lender who has experience with investment loans.
Step 5: Repeat the process: Finally, repeat the process by finding and rehabilitating a new property.
Potential risks of using the BRRRR strategy
Although the BRRRR strategy has many advantages, it also comes with a few risks, including:
Market risks: The real estate market can be unpredictable, and if the market crashes, it can affect the property value and the investor’s ROI.
Rehab cost: The cost of rehabilitating the property can be more than anticipated, leading to substantial unforeseen expenses.
Tenant risk: There is always the risk of bad tenants, which can lead to high maintenance costs and a disruption of cash flow.
Frequently Asked Questions
Q1. Does using the BRRRR strategy mean that I’ll own multiple properties?
Yes, each real estate investor follows this strategy will own multiple properties which can increase passive income stream over time.
Q2. What is the difference between BRRR and BRRRR?
BRRR is an abbreviated form of Buy, Rehab, Rent, Refinance. BRRRR is an extended form of BRRR which includes an additional R that stands for Repeat.
Q3. What kind of properties should I target with the BRRRR strategy?
A good property for the BRRRR strategy is an under-valued property which requires rehabilitation in an area with a high demand for rentals.
Q4. Do I need to have a lot of money to use the BRRRR strategy?
You need to have enough money to acquire the property and make repairs. It is recommended that you work with a lender who can give you high-quality investment loans.
Q5. How long does it take to finish one cycle of the BRRRR strategy?
This can vary depending on the level of repair of the property. However, it usually takes a few months to complete a BRRRR cycle.
Conclusion
The BRRRR strategy is an effective and proven method of real estate investing that can help investors achieve long-term cash flow, increase their ROI, and scale their portfolio. However, it is also important to be aware of the potential risks that come along, including market risks, rehabilitation costs, and tenant risks. By following the steps mentioned above, real estate investors can effectively utilize the BRRRR strategy and expand their portfolio, while generating significant profits.
