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What is the BRRRR Method in Real Estate Investing?

Alcove Team | 12/20/21

What is the BRRRR Method in Real Estate Investing?

What is BRRRR investing?

  • Buy.

  • Rehab.

  • Rent.

  • Refinance.

  • Repeat.

SFRs are the hottest real estate class for the next decade.

The BRRRR technique is an excellent approach to begin real estate investing.

The BRRRR Method (Buy, Rehab, Rent, Refinance, and Repeat) is a real estate investing method that entails flipping distressed property, renting it out, and then cashing out refinancing it to fund other rental property investments.

A BRRRR investment usually necessitates the use of two different types of financing. 

To finance the acquisition expense and improvements, you take out an interest-only fix and flip loan when you acquire the property. After that, you'll refinance to a long-term rental loan with a lower interest rate and a complete amortization schedule. 

Understanding the BRRRR:

You'll hear about BRRR or BRRRR investing if you're investing in real estate or planning to launch a real estate investing firm.

This strategy focuses on distressed and off-market assets, such as foreclosures and homes up for auction. The plan is to buy homes for a low price, turn them into rental properties, then refinance fast to fund another. 

Through rental income, the BRRRR method of real estate investing has shown to be a terrific way to develop cash flow and financial independence. This real estate investing technique is excellent for investors who want to build a substantial rental property portfolio swiftly, and it works like this:

Buy:

Purchase a property that is undervalued or in difficulty using alternative finance such as hard money (high-interest loans meant to be paid off in a short period of time).

To see if the BRRRR technique is proper for you, perform the calculation to see if the purchase price (including closing fees) is enough to pay your renovation expenditures.

Rehab:

Make changes to the property to increase its value and make it rentable. The term "rehab" refers to the process of returning a property to its original state. Updated kitchens and bathrooms, as well as bedroom extensions, are examples of high-return renovations.

Rent:

Rent out the property according to market conditions. The rental revenue will allow you to pay down the mortgage, maybe at a profit month after month, and create equity for the next phase (refinance).

Refinance:

Pay off your initial hard money loan or HELOC (Home Equity Line of Credit) with a cash-out refinance. Cash-out refinancing is advantageous since it allows you to purchase a new home with cash. Basically, you're pulling equity out of the first home to place as a down payment on another home. Here's some more info on the refinancing aspect.

Repeat:

To purchase other properties, follow the method described above. Make a new down payment for your next investment property with the earnings leftover from the cash-out refinancing.


Conclusion

The BRRRR Method can help you generate passive income while also increasing the value of your real estate property. Before you can secure a cash-out refinancing, you'll need the patience to repair the house, locate renters, and do many other things.

Returns, earnings, and outcomes will vary substantially, as with each real estate investing approach. 

Your results will be more remarkable if you are better at sourcing excellent leads, assessing investments, and managing properties and rehabs. This real estate investment plan has a lot of moving elements and a lot of places for things to go wrong.

Before attempting to purchase a property using the BRRRR approach, you must conduct due diligence on the specific investment methods used with the BRRRR strategy. Before making your next real estate investment, think about these advantages and disadvantages.