The term BRRRR refers to the process of purchasing a rental property and then recouping your investment in the most cost-effective way possible. If you want to own more than one or two properties, this is the way to go. Set this up ahead of time with a reduced-rate cash-out refinance to return all of your capital investment, then repeat the process. It enables you to recoup as much of your investment as possible from each purchase.
The first step in a typical real estate investment is financing. The buyer obtains a loan, uses it to purchase and renovate it.
The benefits of using BRRRR methods are as follows: One, you may be able to profit by purchasing a property that needs repairs or updating below market, and then refinancing to purchase another rental. Two, with a solid tenant or guests and a local property manager, there is the possibility of continuous rental income and cash flow. Lastly, it’s a passive investing approach for building a rental property portfolio.
Another option is for the investor to pay cash for the property instead of financing it. After that, the investor manages the repairs, rents out the property, and begins collecting cash flow. This cash flow is higher than with the traditional technique because there is no mortgage on the property. After the home has been purchased, rehabbed, and rented out, the investor refinances it. The loan amount is determined by the property’s value after repairs, which is higher than its value before the rehab this recouping your capital and potentially making a gain plus cash flow each month and gaining appreciation.
When considering a BRRRR please make sure:
1. You KNOW your numbers before you buy, I can’t stress that enough, cost of repairs income on the hold, ARV, ect.
2. Have a contingency on the repair estimate, get multiple quotes, do due diligence and don’t skip inspections;
3. Have multiple exit strategies that generate returns if you don’t have 2 strategies that generate a return x it off the potential list to buy. There are a lot of pro forma calculators you can download. If you need one, I can provide you with one and even help you review the deal prior to its closing.
4. Choose a professional construction company who is licensed, bonded, insured, registered, can pull permits, and one that has an office location you can visit. (I know of one that is fantastic)
5. Have your cash out refi numbers reviewed by your lender before you close on the acquisition.
This strategy can be a game changer for your investment portfolio.