The BRRR Method, which stands for Buy, Rehab, Rent, Refinance, is one of these buzzwords that are often thrown around in the real estate industry. Notwithstanding the hype, this strategy can yield great returns on investment. Simply put, the BRRR boils down to adding enough value to a property to recover the money you invested in it. This, in turn, allows you to take the money and use it to buy more properties. Over time, you will be able to build a real estate portfolio that gives you complete financial independence.
Let’s dive into each step of this multipronged method:
Finding a good deal is one of the most important aspects of the BRRR method. To implement this strategy successfully, you need to buy properties under the market value and never invest more than 70 to 75% of the property’s after repair value (ARV).
Most lenders use the ARV to determine how much money you can borrow and typically offer loan-to-value (LTV) rates ranging from 60 to 75%. Keep in mind that your lender is likely to request their own appraisal as part of their due diligence to compare with the ARV that you present, so it’s important to make yours as accurate as possible.
Rehabbing a house comes with a myriad of challenges. Your focus should be on making the house functional and livable. Any aesthetic improvements should make sense financially so the value added exceeds the costs. A finished basement or garage and basement, on one hand, are rarely worth the expenses. New tiles and new light fixtures, on the other hand, can have a positive effect on rent while keeping the costs low.
It will be a lot easier to refinance your investment property when it is occupied by renters as properties that stay vacant for an extended period of time send out the wrong signals to lenders. Make sure to screen tenants diligently. Checking the tenant’s background, verifying their job and income, and contacting previous landlords are some measures you can take in anticipation of a lease agreement.
Try to maintain an open communication line with your tenants and work hard to keep the good ones by being responsive and attentive to maintenance faults.
The next step is to recoup the initial equity with a cash-out refinance so you can repeat the process and build out your real estate portfolio. The goal is to get as high of an appraised value as you possibly can. The typical cash out financing is done after 6 months of owning the property, based on ARV. This wait period is called the seasoning term and can vary from lender to lender.
Are you interested in going the BRRR route? RLG has the tools and resources at its disposal to get you on your way. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!