Real estate investing can be a great way to make money and build wealth over time. However, we’ve learned it’s important to do research and learn as much as you can from those who have been successful. This blog post will discuss the BRRRR method of real estate investing.
Many investors use this popular strategy to achieve success in the market. We will go over each step of the process so that you can understand how it works and decide if it is right for you!
If interested, you can see my other article where I share How We Made $250K in 4 Years From Real Estate As College Students.
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Table of Contents
What Is The BRRRR Method?
The BRRRR method is a strategy for real estate investing that stands for “buy, rehab, rent, refinance, repeat.”
This methodology can be used in both residential and commercial real estate investing.
Buy: The first step is to find a good property you want to purchase.
Once you have found a property, you will need to put down a deposit and then close on the deal.
Rehab: After you have purchased the property, you will need to renovate or repair it so that it is in good condition and value is added.
Once the repairs are complete, you can rent the property to tenants.
Rent: After the property has been rented out for some time, you can refinance the property loan.
Refinance: You can conduct a cash-out refinance where you take out cash for the equity in your property and use it to purchase your next one.
Repeat: Once you have refinanced the property, you can then repeat the process by finding another property to purchase and rehab.
How The BRRRR Method Works
The BRRRR method is a great way to invest in real estate because it allows you to use other people’s money to finance your investment.
In the beginning, you will need to put down a deposit on the property.
However, once you have renovated the property and rented it out, you can refinance the loan and use it to buy another property.
This process can be repeated repeatedly to build up a portfolio of rental properties.
The BRRRR method is a great way to succeed in real estate investing!
Example of how the BRRRR method for real-estate investing works
You find a fixer-upper home for sale at a great price, put down a deposit, and close on the deal.
You then spend the next few months repairing and renovating the property. Once the repairs are complete, you start renting the property to tenants.
After a few years, you refinance the loan on the property at a lower interest rate. This saves you money on your monthly payments.
You then repeat the process by finding another property to purchase and rehab.
What Are The Benefits of The BRRRR Method?
Many top real-estate investors use the BRRRR method. Now that you know this strategy, let’s look at the benefits. Here are the top 8 benefits of the BRRRR Method:
Benefit #1: Allows You To Reinvest Your Money.
This is because you’re only using a small amount of your own money to purchase the property.
The BRRRR method allows you to borrow against the equity in your property to purchase additional properties.
Benefit #2: Creates Equity and Builds Wealth.
Your tenants will help to pay off the mortgage, creating equity in the property for you.
As your tenants pay down the mortgage, your equity in the property increases, building your wealth over time.
Benefit #3: Improves Cash Flow.
The BRRRR method can improve your cash flow because you can leverage the equity in past properties for a larger down payment on the new ones.
Your monthly mortgage payments will be lower, leaving you with more cash flow each month.
Benefit #4: Reduces Risk.
Using other people’s money can spread out the risk of investing in real estate. You can also use the BRRRR method to buy properties in areas you’re familiar with and understand well.
Benefit #5: It’s a Simple Strategy To Follow.
The BRRRR method is a simple strategy to follow and doesn’t require a lot of experience or knowledge to implement.
With just 5 easy steps, it’s easy to remember and implement.
Benefit #6: Can Be Used In Any Real Estate Market. This is a great benefit because it does not matter whether it’s a buyer’s or seller’s market.
You can still use the BRRRR method to find and purchase investment properties.
Benefit #7: It’s a Powerful Tool For Creating Passive Income.
If you’re looking for a way to create passive income, the BRRRR method is a great option.
By charging higher rent than the monthly mortgage payment, you get to enjoy the difference as passive income.
Benefit #8: It’s Perfect For Those Who Want To Build Their Portfolio Quickly.
This strategy builds a real-estate portfolio fast because you’re able to buy multiple properties in a short period.
By refinancing, you can access the equity in your properties to purchase additional properties.
In other words, you don’t have to spend as much time saving up for a downpayment.
The BRRRR method is a great way to invest in real estate because it allows you to build property equity over time.
By refinancing at lower interest rates, you can also save money on your monthly payments.
If you are looking for a way to build wealth through real estate investing, the BRRRR method is a great option.
What Are The Drawbacks of The BRRRR Method?
The BRRRR method is not without its drawbacks.
One of the biggest dangers of using this strategy is that you could over-leverage yourself if you’re not careful. This can lead to financial ruin if the real estate market takes a turn for the worse.
Another downside of the BRRRR method is that it can take a long time to complete a deal.
If you’re not patient, you could miss out on other opportunities while waiting for your BRRRR deal to come together.
A common drawback many new investors aren’t aware of is that you need good credit to qualify for the loans required to do a BRRRR deal.
If your credit isn’t great, you may not be able to get the financing you need.
The BRRRR method does not protect investors from mistakenly selecting the wrong property.
Even with a powerful strategy like the BRRRR method, you can still fail if you don’t purchase the right property.
This is because you may find yourself overpaying for renovations/repairs.
Let’s say the contractor leaves the job unfinished or takes too long, you may also end up paying a mortgage while the property is left without a tenant.
Selecting the right property is critical to success, and there are several factors you need to consider before making an offer.
Finally, the BRRRR method may require a lot of cash upfront. By not having enough cash, you’ll need to either get creative with your financing or find another investing strategy altogether.
Despite these drawbacks, the BRRRR method can be a great way to succeed in real estate investing.
Through patience and persistence, you can use this strategy to build a portfolio of rental properties that will provide cash flow for years to come!
Just make sure you understand the risks involved before diving in headfirst.
What Are The Risks of The BRRRR Method?
The most common risk factors when it comes to the BRRRR method is:
Destructive Tenants: These tenants can do serious damage to your property, which will end up costing you a lot of money in repairs.
Bad Contractors: As mentioned before, if you hire a bad contractor, they could take forever to finish the job or do a terrible job.
Over-leveraging: This is probably the most dangerous risk in BRRRR investing. If you’re not careful, you can easily over-leverage yourself and end up in financial ruin if the real estate market turns worse.
To avoid these risks, it’s important to do your due diligence when selecting properties and contractors. You should also have a solid plan in place for how you will finance your deals.
Having some extra cash, consulting lawyers, and being conservative with leverage can help reduce the risks involved with BRRRR investing.
Despite the risks, the BRRRR method can be a great way to invest in real estate and build equity over time.
How To Get Started With The BRRRR Method?
If you’re considering using the BRRRR method to invest in real estate, you should keep a few things in mind.
First, this strategy requires patience and careful planning.
Second, you need good credit to qualify for the loans required to do a BRRRR deal.
Finally, ensure you understand the risks involved before diving in headfirst.
Here’s an in-depth guide on how to get started with the BRRRR Method:
Step One: Find a property that you can buy below market value.
There are a few ways to find properties selling below market value. You can look for properties that are in foreclosure, short sale, or REO (real estate owned).
You can also look for properties that need significant repairs.
Tips For (B)uy:
- Look for motivated sellers.
- Get a real estate agent that specializes in finding distressed properties.
- Use online search tools to find properties that are selling below market value.
The key is finding a property you can buy at a significant discount. This will give you the most equity in the property and the best chance for success.
Step Two: Renovate the property to add value.
Once you’ve found a property you can buy at a discount, it’s time to start the renovation process.
The goal is to add value to the property to maximize your return on investment.
Related Content: First-Time Landlords At Age 22 (As College Students)
Tips For (R)ehab:
- Get multiple bids from contractors before you start the renovation process.
- Make sure you have a detailed budget and timeline for the renovation project.
- Be prepared for the unexpected.
Start with a vision and plan of how you want the finished project to look. You will need to get estimates from contractors for the work that needs to be done.
Decide if the renovations will add enough value to offset the costs. Once you have a budget, you can start finding a contractor and completing the work.
Step Three: Find tenants and start generating income.
The next step is finding tenants and generating income from your property.
The goal is to make enough monthly money to cover your mortgage, taxes, and insurance. This will create a positive cash flow situation for you.
Tips For (R)ent:
- Screen your tenants carefully.
- Make sure you have a detailed lease agreement.
- Be prepared for repairs and vacancies.
You can find tenants by advertising your property online or through word of mouth.
Once you have tenants, it’s important to screen them carefully and make sure they are qualified.
Step Four: Refinance the property and pull out your equity (if needed).
Related Content: The Refinance Process (Our Experience)
After you’ve built some equity and paid off some of your mortgage loan with the help of your tenants, it’s time to refinance the property. This is where the BRRRR method gets its name.
Tips For (R)efinance:
- Get multiple quotes from different lenders.
- Make sure you understand the terms of your new loan.
- Be prepared for closing costs.
You will need to find a lender willing to give you a loan for the property’s value after renovations. Once you have refinanced, you can pull out equity in the home as cash for the next property.
Step Five: Repeat and build your portfolio.
After completing the first 4 steps, you can now repeat the process and start building your portfolio.
The BRRRR method is great for building equity and creating a passive income stream.
By carefully selecting properties and managing your finances, you can succeed in real estate investing with the BRRRR method.
Tips For (R)epeat:
- Keep track of your finances.
- Diversify your portfolio.
- Stay disciplined and learn from past mistakes.
The BRRRR method can be a great way to succeed in real estate investing if you know how to lower your risks.
If you are patient and careful, you can use this strategy to build a portfolio of assets that will provide passive income.
In Conclusion
The BRRRR method is great for those looking to make money in real estate investing.
It is important to research and understand each step of the process before getting started.
If you follow the BRRRR method, you can successfully invest in real estate! Another way to invest in real estate without being a landlord is with Fundrise.
A great way to start investing in real estate without a lot of money is with Fundrise, a crowdsourcing real estate investing platform.
With investment minimums of ONLY $10, you can start making PASSIVE INCOME with your real estate investment portfolio!
Thanks for reading!
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
