The BRRRR strategy is one of many ways to invest in real estate. It is like the traditional rental property investment method. People usually do it by buying a flip property, fixing it up, and renting it out.
Then they go to a bank and get a refinance. They do this again and again. BRRRR investing allows you to grow a portfolio without having to tie up large sums of cash for a long period of time. But, of course, it isn’t quite so simple. Let’s do a quick BRRRR analysis to see if this strategy might be right for you to learn more about.
This is the first step in the process and where you decide what type of real estate property to buy. A general rule of thumb is that a BRRR investor wants real estate properties with low prices, high rents, and long-term tenants so they can be profitable. Buy at a Discount-always.
The next step is to rehab the property. The goal here is for investors to increase their rental value by renovating real estate properties which will eliminate vacancies while also increasing monthly rent payments from occupants. Try to finish the process as quickly as possible. Keeping the cost down and getting a good cash flow as soon as possible. You’ll also want to consider the area and market expectations on the renovations needed to match the payments people are willing to take long term.
Determine the rental price after renovating it. This will gain equity in the property, attract better tenants and can lower monthly maintenance budgets. Then find people to rent the home. When determining the rent, it’s important that it’s both fair to your renter and able to produce a positive cash flow for you. Having comparable rates gives you the opportunity to for better rates, if you exceed that you could expect higher turnover.
After the property is stabilized with a tenant, and there has been several months of rental history, you can start the process of refinancing. Use a cash-out refinance to pay off your original loan. Since this strategy utilizes a cash-out refinance after the property has been improved and rented, you are able to pull out your money to reinvest in another property with the benefits of a long-term mortgage that has little to none of your money invested into it. Keep in mind that most banks will only loan a portion of the appraised amount in a cash-out refinance, which is typically 75% or less of the appraised value. You could potentially benefit from tax deductions since you own the rental property. You’ll need to leverage the expertise of your Power Team members to help maximize your ROI for the property.
Ideally, the BRRRR investment will go as planned. This means that you will have bought, rehabbed, rented, and refinanced the property without any problems. If this is the case, it is time to invest in a new property. If you did a great job, you will have additional profit that can go into your pocket or be reinvested into your real estate investing business. Building wealth with cashflow from real estate is an incredible journey and takes a lot of hard work and time.
The amount of money you could make using the BRRRR strategy depends on how good you are at finding the right properties to buy at the right prices. You always want to focus on getting the property at the lowest price possible. As with any investment strategy, results will vary a lot and you’ll have hurdles along the way. However, if you are good at finding quality leads, analyzing investments, and managing properties and rehabs, then you're on track with building your financial freedom.
Ability to make a passive income. This is a major win for building wealth.
Increase your rental portfolio. The more you have, the more cashflow you get.
Build equity during the rehab process and repeat this process if you’re able to.
Access into equity from real estate property A. to buy another new property B. without selling either one yet at a lower interest rate.
High return potential on investment.
Equity as time continues.
Cost of work and renovating the property.
You might not be able to get a traditional loan, might have to get a more expensive or riskier loan.
Renovating may take longer than expected. Remember, Time is Money.
The amount of equity you’ll need to invest will be higher for this method to work.
There is a period that rentals need to have tenants before a bank even contemplates refinancing the loan. This is known as “seasoning,” and it can take anywhere from six months to a year. This should be factored in from the beginning of your plan and budget.
The BRRRR investment method is one of many and involves risk. But some investors might find it more attractive. If the investor is OK with using expensive hard or private money, and if they are systematic, good at budgeting, good at dealing with rehabs, and want to use little out-of-pocket cash, then the BRRRR investment strategy is one to consider.
However, if the long-term goal is to use your own money to attain financial independence through cash-flowing rental properties, then sticking to traditional rental property investing might be a better choice. It’s about knowing your strategies and getting the maximum return. At Legacy, we pride ourselves on being industry leading in financial education and helping people get started towards their goals.
Big picture takeaway points
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