Investing in real estate can be a powerful way to build wealth, and the BRRRR method is one strategy that has been gaining popularity. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This systematic approach can help you grow your real estate portfolio efficiently. Here’s how it works:
- Buy
The first step in the BRRRR method is buying a property. To maximize the potential of this investment, you’ll need to find a property that requires some work but has significant potential for value appreciation. This typically involves searching for distressed properties or those listed below market value. The key is to purchase at a price low enough to allow for rehabilitation costs and still make a profit. A good rule of thumb is the 70% rule: pay no more than 70% of the property’s after-repair value (ARV) minus the cost of repairs. - Rehab
Once you’ve secured the property, it’s time to roll up your sleeves and get to work. The rehab phase involves renovating the property to increase its value. This could range from simple cosmetic updates like painting and new flooring to major structural repairs such as roof replacements and plumbing upgrades. The goal is to improve the property to a point where it can attract tenants and justify a higher valuation. Be sure to budget carefully and track expenses to avoid overspending. - Rent
After rehabbing the property, it’s ready to be rented out. Finding reliable tenants is crucial, as consistent rental income will support the next steps in the process. Make sure to screen tenants thoroughly and set a rental price that covers your expenses and provides a reasonable return. Having a property management system in place can also streamline the process of collecting rent and handling maintenance requests. - Refinance
With tenants in place and the property value increased, you can now approach a lender to refinance the property. The goal is to take out a new mortgage based on the property’s appraised value, which should be higher than your initial purchase price plus rehab costs. This allows you to pull out much of your initial investment, freeing up capital to invest in your next property. Refinancing can also provide a better interest rate, improving your cash flow. - Repeat
The final step is to repeat the process. With the cash from refinancing, you can start the BRRRR method all over again, building your real estate portfolio property by property. Each successful cycle increases your experience, improves your efficiency, and grows your wealth.
The BRRRR method requires patience, diligence, and a keen eye for good deals. It’s not without risks, but for those willing to put in the effort, it can be a highly effective strategy for building a real estate empire. David Greene at BiggerPockets has written a whole book on the topic.