How does the BRRR strategy work?
In general, the BRRRR method is a real estate investment strategy that involves several different steps. Unlike a traditional real estate investment strategy, the BRRRR method relies on investing in beleaguered properties, flipping them over, and then refinancing these distressed properties in order to buy more rental properties in turn.
If implemented correctly, this investment method can help you provide continuous passive income. Likewise, an ongoing means of buying and owning larger and better rental properties can also be created. To successfully apply the BRRRR method, you will need:
Buy: Buy a boxed property that requires great loving care and work to get them to code and have it ready for rental. For example: A good characteristic of applying the BRRRR method might be an undervalued distressed single family home (though structurally sound) in need of general rehabilitation, cosmetic upgrades, and a little TLC. Homes that are in distress and have lost significant value but have the potential to recover significant value through DIY repair may be good candidates for purchase by BRRRR method investors.
rehab: Then, because the property is in less than ideal condition, you will need to complete any necessary renovations to increase the home’s value – noting that some homes may need more extensive repairs than others. As part of this step, you will effectively renovate the condo, duplex, house or condo to give it desirable aesthetic upgrades, raise its structural and safety elements to code level, and otherwise make it habitable for its tenants.
rent: After a major overhaul of your property, you’ll want to set the rental price and find tenants to move in. When looking for potential tenants, it is important to look for individuals with a strong credit history, stable employment, and a solid track record of paying bills in a timely manner. As a landlord, doing background and credit checks while you work can help you thoroughly screen potential tenants.
refinancing: Next, you’ll want to refinance the property. Simply put, this means using cash refinancing (which allows you to convert the equity in the home into cash) to pay off the original home loan. Basically, here you will get a larger mortgage by borrowing more money than you owe under your existing loan – money that you can then use to buy another property.
repeat: Finally, using the proceeds of cash refinancing, you will then make a down payment on your next investment property and start the process over. In other words, the last step of the BRRRR method sees you take the money received from the previous step cash withdrawal refinance and buy another distressed property before renting it out and refinance it again.