What is Buy, Repair, Rent, Refinance and Repeat (BRRRR) Strategy?
What is Buy, Repair, Rent, Refinance and Repeat (BRRRR) Strategy?
In case you have not heard of it already, the "Buy, Rent, Refinance and Repeat" or "BRRRR" strategy is a self-explanatory name for a commonly used investment strategy in real estate. It is a relatively simple process consisting of purchasing a rental property with an appropriate down payment amount, renovating the property using the down payment, then renting the newly improved property for a profit.
This strategy has become popular amongst many real estate investors due to the potential profitability that can be achieved (especially when done with other people's money). It is also an extremely effective way of utilizing leverage. If you are wondering, "What is leverage?", it is important to understand that leverage is essentially the use of borrowed money to elevate returns.
When you purchase a property with all your cash, your return on investment will be capped at the total amount of equity that you have in the property (the difference between what you paid for it and how much you can sell it for). For example, if you buy a house for $100,000 and it goes up to $110,000 in value, you won't make any extra money than the $10,000 that the property appreciated in value.
On the other hand, when you utilize leverage by using borrowed money (such as a mortgage) to purchase your rentals, you will be able to take advantage of a greater amount of equity. For example, you could buy a property for $100,000 with 20% down ($20,000) and utilize a mortgage for the remaining $80,000. If the house goes up to $110,000 in value, your total return will be not be limited to the original price that you paid for it. Instead, you will own 20% of the house and it will be valued at $110,000; therefore your total return on investment (or profit) would be $11,000 (which is 1/5 of the value of the property).
The BRRRR strategy has gained popularity in recent years due to its potential for high returns and increased ability to utilize leverage. However, utilizing this strategy is not as simple as it seems and there are many important factors that must be taken into consideration before attempting BRRRR .
What Is Buy?
When you purchase a rental property, you need to make sure that the property is appropriate for this strategy. Unlike most other real estate purchases (or investments), BRRRR allows you to purchase a house that requires very little work and therefore requires no renovation. Instead, you should be looking for homes that require only cosmetic upgrades such as landscaping, painting, or new flooring. These upgrades can be completed within a few days and will result in an increased rental price upon completion..
If you are looking for what is buy in real estate investing, check out more information on how to purchase your next property!
What Is Rent?
Once you have purchased the house, it is important to move quickly with renting it out. The longer you wait, the more time you will have to spend on the house and therefore increase your overall costs. Also, by waiting too long, there is a greater chance that the value of the property will drop after you purchase it (which would decrease its potential rent).
As soon as your renovations are completed, it is important to start advertising your home for rent. By the time you finish renovations (and find a tenant), it will take 2-3 weeks to get everything done and ready for renting. Therefore, it is best to begin looking for tenants 2-3 months before completing the renovations so that there is no lapse in between when you finish and when you can start renting it out for profit.
What Is Refinance?
Before you begin your project, it is important to find a real estate agent that specializes in refinancing homes. This could save you thousands of dollars as many conventional loans will not include refinancing costs (such as appraisal fees, document fees, etc.). By using a specialist, you can get a much better deal and potentially save thousands of dollars.
What Is Repeat?
After your property has been refinanced and is bringing in rental income from tenants, there are various options to consider for utilizing this property. The most common strategy would be to refinance the house again once it has been paid off (or after you have reached a certain point in your amortization schedule).
By refinancing the house again, you could potentially get a much lower interest rate or even cash out some of the equity that has built up.
There are other options which would depend on your individual situation. For example, if you were to take out an investment loan for the house, it is possible to get a line of credit after the property has been refinanced. This would allow you to access the equity in the house and pay yourself back whenever desired.
Finally, there are options such as selling or holding onto this property for long-term wealth creation and financial security by using BRRRR investment strategy and mortgage.
There are several different options to consider when using the BRRRR strategy. Each of these options have been explained in more detail by real estate professionals. In Canada people have used this BRRRR strategy more than 1000 times and they are very successful.
How To Get Started With The BRRRR Strategy?
To begin using the "Buy, Repair, Rent, Refinance, Repeat" strategy, you will need to find an appropriate property for this type of investment. To find a home, you will need to contact a real estate agent from your area and ask them if they have any properties suitable for this strategy. Alternatively, you can use buying homes through auctions as a way of finding the next property for this strategy.
What Skills Do I Need For This Strategy?
To successfully purchase a home with this strategy, you will need to have the following skills:
- Strong analytical skills (to determine an appropriate purchase price, renovations needed, and rental income potential)
- Ability to make quick decisions (when it comes time to make offers on properties)
- Ability to do extensive research (on the real estate agent you are using for this strategy)
- Negotiation skills (to ensure that you get the best deal possible)
- Ability to do all of your own renovations (or hire contractors)
- Marketing and accounting skills (to ensure that the property is rented out for profit and account for all income and expenses).
Finally, having an understanding of how mortgages work will be crucial to being successful with this strategy.
