There’s a method in the madness when it comes to acquiring BRRRR loans. We're here to help talk you through the steps of the BRRRR real estate method as well as what not to do.
What is the Real Estate BRRRR Method?
The buying phase is the first step and where BRRRR loans could play their role. We want to identify a solid, sweat equity property to fix up and make nice. We at FIRE Realty Team try to make this part simple. Look for an ugly house, confirm there is plenty of sweat equity and focus on the execution.
Many tend to get caught in "analysis paralysis" during this step trying to find a perfect BRRRR. Easier said than done, don't get caught up in perfection. Follow the fundamentals and practice.
This is the make or break phase... Finding/Managing Contractors is tough as well as picking out the highest ROI items to update. Do your due diligence and pick reputable contractors. The most simple, high ROI items are paint, flooring, fixtures, and hardware. Make sure the kitchen and bathrooms are clean and nice.
DON'T get caught up in “cute”. On a rental grade BRRRR, it probably doesn’t make sense to purchase that $500 chandelier. Pick out something from home depot that matches the colors of the house and call it a day. New/nice is better than fancy/expensive. The person we are trying to impress most is the appraiser at the bank. They are looking for quality and features (size, beds, location, etc)
Now that the place looks nice, it should command top-market rent and you will start bringing in income! Take solid pictures, write up an enticing description, get it posted for rent, and find a reliable renter!
Call your Mortgage Broker and they do a “cash out refinance”, paying off your first loan, or simply giving you a check reimbursing you for the capital you have in the deal. They will literally hand you a check and this is your new “loan”. Since the property should now appraise much higher than when you purchased it, this new loan should be enough to payoff your first BRRRR loan and reimburse the rehab costs!
Go do it again! The BRRRR real estate method compounds ROI. As you might expect, doing the BRRRR method multiple times increases that growth opportunity. This is why you want to narrow in on an easy and sustainable approach so that you can repeat the process and fine-tune your portfolio.
BRRRR Method Real Estate: What Not to Do
Don’t get caught up in the BRRRR method being a result of infinite ROI and pulling out 100% of your money. That’s great and would be a perfect BRRRR but it’s important to remember that the BRRRR method is simply a “method” for compounding your ROI. Every dollar pulled out compounds your ROI, but it’s not necessary to pull out every penny. Example below.
Oftentimes, we prefer “softer” BRRRRs that are smaller rehabs, where we don’t plan on getting every penny out because these types of deals are easier to find, easier to rehab, and simply more sustainable to repeat.
These numbers are simplified, but this is likely a very high ROI with only $5k left in the deal. MANY investors pass on a deal like this because they want a perfect BRRRR. It’s likely that with cash flow and your day job, you can pretty easily recoup this $5k and be able to complete your next deal!
The alternative is waiting and waiting and never buying because you just can’t find that “Perfect BRRRR.” Real Estate Investing is about taking that first step and continuing to move forward.