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To achieve success with the BRRRR Method, you will want to follow what is known to veteran real restate investors as the 70% Rule. Essentially, when you’re looking to use a BRRRR loan, utilize loan funds to cover no more than 70% of the home’s after-repair value minus the costs of renovating the property. This will leave a broad 30% margin to cover unforseen rehab costs and other unplanned interruptions to construction.
Once you’re finished with rehab, you will want to rent the property to tenants. The rent should be greater than or equal to 1% of what you paid for the home including all renovations, repairs, and other improvements. By renovating the property, its value should increase (if not exponentially, as in hot markets like Seattle). Once you rent out the property, you’ll be eligible to refinance your investment with a conventional lender and receive cash for the equity you have now built into the property with renovations. You can use this cash to fund the purchase of your next fix and flip.
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BRRRR Method FAQ
The BRRRR strategy is a proven and effective financing technique used by many real estate investors to grow their portfolios. By adding value to an asset during the purchase and holding periods, investors make more than their original investment back from the refinance of the property. This allows you to take that money and use it again to buy deals, resulting in the exponential growth of your business, while also allowing you to generate passive income for years to come. Once you expand the property’s value through renovation and rent it out, you’ll be able to find a traditional lender (mortgage/bank) to refinance it. You can then pull out your equity and use it to fund your next investment deal.
What is the BRRRR strategy in real estate investing?
BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. It’s a real estate investment strategy where an investor purchases a property, performs necessary renovations, rents it out to tenants, then refinances to recover the investment capital. The process is then repeated with another property.
What are the benefits of the BRRRR strategy?
The BRRRR strategy allows investors to recycle their capital for multiple investments. By refinancing, investors can recover their initial investment while retaining ownership of the property, which continues to generate rental income and may appreciate over time.
What types of properties are suitable for BRRRR?
Residential properties like single-family homes, multi-family properties, and small apartment buildings are commonly used in the BRRRR strategy. Properties that can be purchased below market value and have room for significant improvement typically offer the best opportunities.
What risks are associated with the BRRRR strategy?
Risks include potential renovation cost overruns, vacancy periods affecting rental income, changes in market conditions impacting property values, and potential challenges in refinancing if property appraisals come in lower than expected.
How does a hard money loan fit into the BRRRR strategy?
Hard money loans play a vital role in the BRRRR strategy, providing quick financing for the property’s purchase and renovation. After the property is rented and generating income, the loan can be refinanced with a traditional lender, recovering the initial capital for the next investment.
How important is the rehab part in the BRRRR strategy?
Rehabilitation is critical in the BRRRR strategy. It increases the property value, allowing for higher rental rates and a higher property appraisal, which in turn allows for more favorable refinancing terms to recover the initial investment.
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Actively Funding Since 2009: Why We’re Still Here
As a real estate investor, you know how important it is to find a reliable source of funding to finance your projects. With so many hard money lenders out there, it can be tough to separate the good from the bad. That’s why we want to take a moment to tell you about what sets us apart.
At Intrust Funding, we’ve been providing short-term loans to real estate investors since 2009. We haven’t changed our underlying principles; we haven’t changed our rates; we don’t take shortcuts or use gimmicks to win business. Instead, we believe in building long-term relationships with our clients based on solid principles that remain true even when markets shift. That’s how we’ve remained open and offered funding while other lenders have closed their doors and called their loans due. We have never stopped funding since our inception in 2009 and would love fund your next project.
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