What is the BRRRR Method?
Point of Interest
The BRRRR method stands for “buy, rehab, rent, refinance, and repeat.” It’s a way for buy-to-rent property buyers to use the improved equity of each property to invest in the next.
The BRRRR method is an important process for investors looking to buy rental properties. When you use this method, you’ll create a plan to buy new properties using the equity you’ve built up through purchasing other properties. Renting property can be a very lucrative business or help people get on the housing ladder by having renters live in the property until the mortgage is paid off.
What does the BRRRR method stand for?
BRRRR stands for buy, rehab, rent, refinance, and repeat.
The BRRRR method is a way of creating a cycle of buying property for rental purposes. Buyers who purchase a property and then fix it up to improve the value can then refinance it at its maximum potential value, allowing them to purchase a second, third, or fourth property.
- Buy: First, the buyer must acquire their initial property. They must raise the required deposit, scout out the best mortgage rates, find a property, and make the purchase. Mortgages for buy-to-rent properties often work slightly differently than regular ones, so fledgling property tycoons must carry out their research thoroughly.
- Rehab: The next phase of the BRRRR method involves increasing the value of the newly acquired property by carrying out renovations. This might involve updating the bathrooms and kitchen, installing utilities such as central heating or air conditioning, or carrying out structural repairs and redecorating. Buyers can often raise additional cash for these renovations as part of their mortgage deal or secure it against another property, so it’s always worth exploring all the options available.
- Rent: Now that the property is fully rehabbed and modernized, the buyer can advertise for tenants and begin collecting rent from the property. However, landlords have dozens of regulations and responsibilities to adhere to, and many choose to employ the services of a property manager to handle the bulk of the heavy lifting on their behalf.
- Refinance: With the property occupied and providing income, the buyer can look for the next premises to add to their portfolio. With the value of the first property increased thanks to the rehab step, it should now be worth more than the mortgage and can be refinanced to secure funds for the second purchase. However, refinancing may not always be the best option, which is why the buyer needs to consider this step carefully.
- Repeat: Once a buyer has successfully completed all these steps, it’s time to start over. Return to the beginning of the process and begin looking for a new property to buy, rehab, rent, and refinance.
Who should try the BRRRR method?
There are many advantages to purchasing a property using the BRRR method. There is less money invested in each property, meaning you have more capital to invest in additional properties. This also typically leads to higher returns because you have less money on the line, and you’ll have better cash flow if you face an emergency. You may even see benefits on your taxes when filing your return.
It’s important to have a good knowledge of the property market before trying out the BRRRR method. A buyer should research everything from mortgage and refinance rates to reputable contractors to avoid losing money along the way. It also helps if the buyer has some initial capital, as this will eliminate the need to go into debt for the initial property purchase and rehab steps of the process.
BRRRR is ideal for investors who want to build a passive income through a portfolio of high-quality properties. The process is not for the faint of heart and can be incredibly demanding, both in terms of stress and the number of plates that need to be kept spinning. However, an investor with some capital to spare who isn’t averse to a certain level of risk and isn’t afraid to work hard can find great results with the BRRRR method.
Who shouldn’t try the BRRRR method?
The BRRRR method is not without its drawbacks. Larger loan amounts for refurbishments can reduce cash flow on the rentals. Having multiple loans can add to the bottom line and create more costs. And appraisals can be inconsistent and lower the amount of money that can be raised against the property. You might even run into less-than-favorable refinance rates. This is all before you consider any other issues that may arise from renting, repairing, and maintaining the property.
The rehab stage of the BRRRR process is arguably the most difficult and will require the buyer to be present and engaged with contractors and potentially even government agencies depending on the significance of the work being carried out. This requires both time and dedication, and those buyers who cannot commit to the project because of other life commitments may struggle to keep up with everything.
This can be somewhat addressed using a real estate team or entrusting the bulk of the work and decision making to a trustworthy contractor, but the buyer will still need a fairly high level of engagement.
The final word
The BRRRR method can be an amazing way of building a significant passive income through property portfolio creation and, once the ball is rolling, can be continued almost in perpetuity. However, there is no such investment as a sure thing, and with so many plates spinning, there’s always a chance that you might lose money.
Get it right, however, and the BRRRR method can elevate a buyer from being the landlord of a single home to being a property tycoon of significant stature over time — if they are willing to roll up their sleeves and put in the work.