Whether you’re looking to get into real estate investing, or you’ve been investing in the real estate market for years, learning how to utilize the BRRRR method can make investing in real estate feel like a dream job. The BRRRR Method is very simple when it comes to breaking down what exactly it means and breaking into the residential real estate industry.
WHAT IS THE BRRRR METHOD?
This unique but phenomenal method for investing is defined by five simple steps.
- Buy
- Rehab
- Rent
- Refinance
- Repeat
Sounds easy enough, right? As you begin to understand the logistics of BRRRR, it’ll all make sense why this method of investment
BREAKING DOWN THE BRRRR
STEP 1: BUYING
The first letter in the BRRRR method stands for buying, which is going to be your initial step in the investment process. When you begin hunting for the perfect investment on the market, sifting through listings and weighing the pros and cons of each potential purchase can help determine which properties may require the least amount of upgrades and which will bring in the best return once you put it on the rental market.
This first step in the BRRRR method is critical because it determines the window of opportunity with your outcome on an investment. When deciding what to potentially offer for the property, make a game plan for the following costs before purchasing the property:
- Costs of renovations
- Monthly rental expenses (estimate)
- Expected rental income/ROI
If you’ve decided that the selected listing will be a worthwhile investment, it’s time to make your offer and get it under contract so that you can move on with the next step of the BRRRR method.
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STEP 2: REHABILITATION
As you move forward with deciding what repairs, updates, and requirements have to take place for the property to be livable, think of which renovations will add value to the property and allow you to increase rental rates. Be careful not to make upgrades that cost more than what you’re getting from rental income.
STEP 3: RENTING
Once you’ve completed any necessary renovations, it’s time to move into the rental phase of the property. Utilizing tools such as screening to help select tenants can be beneficial in selecting tenants that won’t destroy the property or vacate the home without warning. You can request things such as background checks, check stubs to prove the potential tenants make enough to afford the set rental rates, and require a rental deposit that acts as a security deposit in case any repairs arise that don’t fall under your average maintenance.
STEP 4: REFINANCING
After an extended period of time renting out the property, reach out to a local appraiser and get them to provide you with the updated value of the property. This will come in handy when you start interviewing lenders. Provide your tenants with notice that an appraiser will be stopping by so that they can put up any pets and clean the home beforehand.
With your appraisal on hand, prepare to talk with a few banks and see which lender will offer you the best deal with refinancing. Ask questions such as whether they’ll only pay off debt or will they provide a cash-out offer. If they won’t offer cash-out options, move forward with a different bank. Another great question to ask is what their required seasoning period is, which will help you understand how long you need to own the property before a bank will lend on the appraised value rather than what you’ve invested in the property.
STEP 5: REPEAT
Finally, once you’ve made it through your first round of BRRRR investing, utilize your cash-out financing to locate your next project and start all over again.
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