Real estate investors use the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) as a way to continually acquire properties, build equity and create passive income. And the best part?
Once you understand the process and go through it once, it’s infinitely scalable.
We’re going to go through exactly what BRRRR is, including purchasing a property, making the necessary repairs, renting it out, and then refinancing the home to obtain funds for the subsequent investment.
The first step in the BRRRR process is to find a deal on a property. To do this, you typically need to find an off-market property so that you’re one of (if not the only) investors contacting that property owner. Otherwise, the deal is simply not as attractive.
Contrary to popular opinion, whether you’re using The BRRRR Method or simply investing, we think you should invest most of your time investigating leads, not properties. Why? Because by narrowing down your list of potential sellers to motivated sellers, you know that every property is a potential sale.
If you focus on the property first, you’ll simply see fewer options.
To find off-market property deals, you want to find motivated sellers who have simply not yet put their property on the market. For a more in-depth look at motivated sellers, check out our post on motivated sellers here. But to summarize, there are 4 main types of motivated sellers;
Absentee Owners
Inherited & Probate Sellers
High Equity Sellers
Distressed Seller Leads
There are three primary ways to find motivated sellers;
1. Real Estate Lead Generation Software
Using a real estate lead generation software like Leadflow is by far the most time-efficient, scalable and accurate way to find motivated, off-market leads.
2. Skip Tracing
If you don’t have access to lead gen software, real estate skip tracing is another great way to find motivated leads on off-market properties (for the curious - Leadflow’s software handles skip tracing as well).
That said, skip tracing involves visiting government offices (highly inefficient as it is) and manually sifting through records for probate leads, preforeclosure leads, leads with a lien on their property and the like.
3. Driving For Dollars
Driving For Dollars involves driving around town to find distressed properties (properties that are visibly in disrepair) - which is a likely indicator that the property owners are in some sort of financial distress.
Then, once you’ve located these properties, you can skip trace for their contact information. Alternatively, you can try engaging these leads with something like real estate direct mail marketing.
Free apps like Leadflow Analyze make the process of finding, analyzing and marketing to these leads seamless and simple.
Before you even buy a property, come up with a total budget of what the repairs will look like. One of the best ways to get a good idea of what rehabs will cost is to use a home repair estimator.
Investors can use this tool to get an estimate of costs based on the scope of work and other data they enter about the property. It can also assist investors in determining whether or not their proposed rehab project will yield a positive return on their investment.
It may sound counterintuitive, but before buying a new property, use a real estate comps tool to determine what the new value will be after repairs.
A comping tool is a software that helps BRRRR investors estimate the value of a property after the repairs and renovations have been made. This tool compares the subject property to similar properties in the area that have recently sold, and it can provide an estimate of the property's new rental value based on similar rental properties.
Doing this before making a purchase will help you determine whether this is a worthwhile investment.
Ok - you now know the property is a good investment, and it’s one that will be profitable. Now, it’s time to look at financing options.
A government-backed loan that is insured by the Federal Housing Administration is known as an FHA loan. These loans are made to make buying a property simpler for first-time buyers and people with bad credit. Compared to standard mortgages, FHA loans often feature lower down payments and more lenient credit requirements.
A conventional mortgage is a loan taken out to buy a house. These loans are usually provided by banks and other financial institutions, and they have a 15–30 year repayment duration. Compared to FHA loans, traditional mortgages often have greater down payments and tougher credit standards.
A HELOC, or home equity line of credit, is a type of loan that allows homeowners to borrow against the equity in their home. Investors use HELOC loans to buy investment properties or for home improvements, debt consolidation, or other large expenses.
HELOCs often feature a draw time during which the borrower can access the cash and a variable interest rate. The borrower is obliged to return the loan after the draw time, often over a period of 10 to 20 years.
Making the necessary repairs and modifications to a property in order to increase its value and appeal to potential renters is a crucial part of the BRRRR investment technique.
And remember - you’ve already estimated your total repair costs in step #1. Now it’s time to put those plans into action.
Once you have an idea of the costs of the repairs and renovations, the next step is to locate reliable contractors.
You can do this in a number of ways, including consulting with other investors, reading reviews online, or even contacting the contractors directly to request references. Find a contractor who is qualified for the task at hand, and make sure they’ve got all the necessary licenses and insurance required.
Now, it’s time to rent your property out. And remember, you already used a comping tool to get an accurate idea of your property’s value. Now, you can set a competitive rent using that number, and find your tenants.
1. Real estate agents: One way to find tenants is by working with real estate agents. They can help you to market your property to potential renters and screen tenants to ensure that they are a good fit for your property. But remember - this will slightly cut into your profit margin.
2. Online listing platforms: Another way to find tenants is by listing your property on online platforms such as Zillow, Trulia, and Craigslist. These platforms allow you to reach a large audience of potential renters and can help you to find tenants quickly.
3. Social media: Utilize social media platforms such as Facebook and Instagram to advertise your rental property to potential renters. It may be worth looking into PPC advertising and targeting interested renters.
4. Networking: Networking with other real estate professionals like other landlords, real estate agents, and property managers, can be a great way to find new tenants. They may have a waiting list and may be happy to share those names with you!
5. Referral: Encourage current tenants (in good standing) to refer their friends and family, as this is one of the least resource-intensive ways to generate high quality tenant applicants.
Also known as doing a “cash out” Refinancing a property for the BRRRR Method entails taking out a new mortgage on a home that has been rehabbed and rented out in order to obtain funds for the next investment. It’s the final step of the BRRRR process, which allows investors to extract cash while keeping equity in the property. Typically, an investor can expect to be able to take out around 70-80% of the new appraised value.
This stage entails obtaining financial paperwork, comparing rates, applying for the loan, finalizing the transaction, and receiving the funds. It is critical to get the advice of an expert, such as a mortgage broker or a real estate attorney, to ensure that the procedure is carried out appropriately and to evaluate the tax implications of refinancing and how they may affect the investment strategy.
By repeating this process, investors can continue to develop their real estate portfolio while earning passive income and accumulating wealth. It's vital to remember that this strategy demands a large amount of funds and effort, and that in-depth study and due diligence are absolute musts before making any investment.
It's also important to note that this strategy may not be suitable for everyone, and to thoroughly do your research before jumping into any investments.
But if you’re ready to give the BRRRR Method a go, and you want to find a a deal on a killer off-market property, grab a free 7-day trial of Leadflow below and see what it can do for you!