Maximizing Real Estate Profits: The BRRRR Strategy

by | Mar 9, 2023 | Investing Advice | 0 comments

The Buy, Rehab, Rent, Refinance, Repeat (BRRRR) strategy is a real estate investing method that involves buying a property, rehabilitating it, renting it out, refinancing it, and repeating the process. The goal of the BRRRR strategy is to maximize profits and grow a real estate portfolio over time.

 

BUY

The success of the BRRRR strategy hinges on buying the right property at the right price. Investors must take great care in choosing a property that has potential for appreciation or cash flow. To determine whether a property is a good investment, investors must calculate the purchase price and rehab costs, and compare it to the expected sales price or rental income at the completion of the project. Factors like loan-to-value (LTV) ratios and after-repair values (ARV) must be considered before making a purchase.

 

REHAB

The next step in the BRRRR strategy is to rehabilitate the property. This phase of the process is crucial in adding value to the property and ensuring its functionality. Investors must strike a balance between spending too much on the rehab and not spending enough. Repairs that add value to the property should be prioritized, especially if the investor intends to sell the property later.

 

RENT

After rehabilitating the property, investors should focus on renting it out to the right tenant. Finding the right tenant is essential in generating revenue and increasing the chances of refinancing. Having an occupied property increases the likelihood of getting approved for refinancing, as most banks require the property to be occupied before approving a loan. Investors must ensure that tenants are aware of the appraiser’s visit to avoid surprises.

 

REFI

The fourth step in the BRRRR strategy is refinancing the property. To refinance, investors must have an appraisal in place, and should shop around for a lender that offers cashouts and favorable terms. A cashout is particularly important in reducing the investor’s risk. Additionally, investors should pay attention to the lender’s seasoning period, which is the period that must elapse before refinancing can occur. Long seasoning periods can result in high-interest rates, which can eat into profits.

 

REPEAT

When a strategy works, investors should consider repeating it. There are different ways to implement the BRRRR strategy. Investors can go all-in, converting all fix-and-flip projects to buy-and-hold properties. This approach builds a large portfolio of properties, but can be difficult to sell later. Alternatively, investors can adopt the half-and-half method, flipping one property and holding another. This method allows for short-term returns while building a buy-and-hold portfolio. Investors can also create their own mix, flipping a certain percentage of their portfolio while holding the rest, depending on their risk tolerance.

 

CONCLUSION

The BRRRR strategy is a real estate investing method that can help investors grow their portfolios and maximize profits. It involves buying the right property at the right price, rehabilitating the property, renting it out, refinancing it, and repeating the process. Investors must pay attention to key factors like LTV ratios, ARV, cashouts, and seasoning periods to ensure the success of the strategy. By repeating the BRRRR strategy and adopting different methods, investors can build a successful and profitable real estate portfolio.

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