Financial Clarity Coaching Blog,  Investing In Retirement

Investing in Real Estate: BRRRR

Buy, Rehab, Rent, Refinance, Repeat.

Some investors call this the ‘gateway’ in real estate investing. According to one of our most favorite real estate resources, Bigger Pockets definition of BRRRR is, “Through the BRRRR method, you’ll buy homes quickly, add value through rehab, build cash flow by renting, refinance into a better financial position—and then do the whole thing again”.

When you ‘Buy’…

The recommendation is to aim for 70% of the property’s value for proper financing (banks will finance up to 75%), but at 70% you leave a contingency so you don’t go over budget and to save money on refinancing costs. The secret to BRRRR’s success is buying properties under market value & never investing more than 75% of the property’s “after repair value” (ARV). This essentially protects the capital you have built in order to buy other properties.

Rehab is the next important step…

When you rehab, ask yourself 2 questions: “What do I need to do to make this property livable & functional” and “What additions or improvements can I make that will add more value”. This is likely where some investors rehab too much & are unable to recoup the money invested. Think improvements to kitchens, bathrooms, roofs, and landscaping. But when doing bathrooms & kitchens, since these are rentals, you want to be careful in not making them too luxurious.

Rent is the next important step…

Banks usually don’t want to refinance a property that isn’t occupied, making this an important step after the rehab. Besides screening prospective tenants, running comparisons on what others are charging for rent is crucial. With the BRRRR method, your interest rate is usually higher, so what you charge for rent will affect your cash flow potential.

Next comes Refinance…

It can be a challenge to find banks to work with on refinancing. You need to know 2 things from the bank: 1. Do they offer cash out or pay off debt only? 2. What is their “seasoning period”? Seasoning Period is how long you’ve owned the property before will lend on the appraised value versus how much you’ve invested. **For BRRRR to work** you must borrow on the appraised value. This is key. Your appraisal will be most important so finding the right tenants to insure the property is top notch is critical. A great rehab with great renters will lead you to the next step if done correctly.

Repeat!

If your objective is the build a successful real estate portfolio through owning many rental properties, now it’s time to “repeat” everything above on your next property.

Stay tuned for more real estate tips, I can wait to share how you can invest in real estate without actually buying property!

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