How to Invest in Real Estate With the BRRRR Method (Step-by-Step Guide)
Real estate is one of the best investments you can make: it’s less volatile than the stock market, even during economic downturns, but it has a greater return than gold with a shorter horizon. No matter the circumstances, everyone needs a place to live; if you provide an attractive and safe location at a decent price, you’re almost guaranteed to get renters, even if you’re in a small town. Better yet, it can be very satisfying to take a property in disrepair and make it beautiful again, especially if you have any interest in construction or interior design.
If you’re familiar with the real estate market and want to kick your investing strategy up a notch, then the BRRRR method might be just what you’re looking for. Standing for Buy, Rehab, Rent, Refinance, and Repeat, this proven strategy allows you to grow your portfolio while offering a high-quality property for your renters. The boosted value of the property means that you can command greater rents than you could in its original state, and you can use each property as a launchpad for your next investment. Let’s take a look at the steps necessary to get started with this well-respected and highly successful method of real estate investment.
Step one: Set your investment criteria
In order to streamline your search, you need to have a strategy in place, or you’ll simply be picking at random and may not select the most promising investment. Factors you should consider are the timeline and sum of your desired return on investment, the monthly cash flow you need, the general location you’re going to search, and what type of real estate property you will be considering.
Step two: Get financing
For the BRRRR method, you’re looking at distressed properties, which means that you may not be able to secure a conventional loan through a bank. This gives you several other options: a DSCR loan through a private lender, a home line of credit, or covering the cost yourself. You should roll the cost of repairs into this, as doing so will both ensure you have the cash on hand to start right away and that you don’t go massively over budget with rehabilitating.
Step three: find, research, and purchase a property
This part of the BRRRR method, as you might expect, is the most complicated and involves the most work. Just as when purchasing any real estate, you need to identify possible candidates, perform due diligence, make an offer, and finally close the deal with the seller.
Step four: renovate the property
Before you begin to rent the property, you have to bring it up to an acceptable market standard, which includes fixing any code violations, installing or updating appliances, and adding amenities that will attract renters. Try to choose investments that cannot be damaged by tenants, then use low-cost but serviceable items for things like cabinets and doors.
Step five: find tenants
It’s essential that you perform due diligence on your tenants and that you charge a fair market price. Being a good landlord can be time-consuming, so you might consider hiring a property management company and subtracting this from your monthly profits, which is a common strategy for those who regularly use the BRRRR method.
Step six: refinance the property
After you’ve built up some equity and have a steady revenue with renters, it’s time to move on to the next step of the process, which is refinancing so that you can prepare for your next acquisition. Work with a mortgage broker or lender to get the property appraised at its new market value, then get a cash-out refinance mortgage to give you the funds for another property. Both the rental income and the appreciation will help you qualify for better terms than your initial investment, meaning that you save in the long run.
Step seven: repeat the process
With cash in hand, you can now start over by buying a new property, taking the same steps as you did for this first one. Over time, you can build up a sizable portfolio of profit-generating profits; should you need to downsize, you can sell off one of the properties while still maintaining the income from the others.
As with any investment, the BRRRR method is not without its risks
It’s important to note that this method of investing requires a great deal of research and risk: it’s a hands-on strategy that can pay off big, but it’s vulnerable to economic downturns and issues with the individual properties you choose to invest in. You should try this strategy when you have a bit of cushion rather than starting on a shoestring budget; it’s also best if you familiarize yourself with the real estate industry first so that you can identify promising properties and negotiate with sellers to get a good deal. Overall, this is a highly effective blueprint for the right investor, one which has been utilized by thousands of highly successful businessmen. With research and careful consideration, you can develop a hearty portfolio that will continue to generate income for years.