Yes, there are many investments dominating the financial channels these days from crypto to tungsten cubes. However, millionaires still agree that real estate is the best investment around.
Why wouldn’t it be? It’s tangible, lucrative, and it’s withstood the test of time. However, there are still things you can do to get the most out of your real estate investment.
One of the most popular methods is known as the “BRRRR strategy”. So, what is the BRRRR method and why is it so effective? We’re glad you asked!
What Is the BRRRR Method?
Whether it’s a side hustle or your primary business venture, there are many different real estate investments to choose from. The BRRRR method is one of the most particular and well-crafted of them all.
BRRRR is an acronym that stands for buy, rehab, rent, refinance, repeat. It’s a 5-step process that is supposed to help any investor of any scale get the most out of their real estate investments and grow a real estate business in as short of a time as possible.
Essentially, you buy a fixer-upper at a discounted price and put in the work. Once it’s livable, you rent it out to existing tenants. This will demonstrate to the bank the added value of the property, which you will then leverage for a cash-out refinance.
What this does is gives you a lump sum of cash that will be added to your mortgage loan and paid off over time. You will then use that cash to put another down payment on a similar property and repeat the whole process. Let’s talk about why this is such a popular strategy.
Benefits of the BRRRR Method
There are over 22 million landlords in the US, but only a handful of them have used the BRRRR strategy, and some are hesitant to try it. So, how does the BRRRR method work?
Well, without following this pattern, let’s say you wanted to build a real estate business with “turnkey” rental properties. In that case, you’d need to save up for a large down payment, collect month after month of rent (avoiding large expenses), and save up to buy your next rental property, which could take years.
With the BRRRR method, you can get into the business for as little as 15% to 25% of the cost of a fixer-upper, get the work done for as cheap as possible, build rental income right away, cash out, and buy another. For this reason, the biggest benefit of the BRRRR method is that it allows any investor to build a serious real estate portfolio in as short of a time as possible.
Even if you have the money for a turnkey property, the BRRRR method allows any investor to build their real estate business as cheaply as possible. This means you could even start with two, potentially doubling your investment power in the future.
How to Get the Most Out of the BRRRR Method
Sure, the process is well-thought-out and straightforward, but there’s still a lot more to it. No investment comes with guarantees, but there are still ways to maximize your security and profits. Here are a few helpful tips!
Choose the Right Property
When buying a home, you want to think of it as if you were flipping for a profit with only a few months to spare. The longer the process takes and the more expensive it is, the more it will cut into your profits.
Ideally, you want to find a discounted property that needs cosmetic or minor work. For example, a home that needs new interior doors, flooring, and paint may come at a significantly discounted price, but the costs of repairs won’t be too overwhelming, especially if you can do it yourself.
However, a home that needs a new roof, new heating system, or any major structural repairs could be very costly. Always look for manageable repairs, get a thorough inspection, and ask for a quote from a construction crew in the area if you’ll need it.
From there, look for a property in the right location and amenities. For example, it will be much easier to find tenants and improve resale value on a home with a pool that’s near a public transportation stop.
Get to Work
Doing anything yourself will save you a small fortune in labor costs, so do as much of the renovations as you can on your own. Anybody can learn to paint, do some basic landscaping, or make small hardware repairs around the home, and it could save you thousands of dollars.
Shop Around for Loans
Another big savings opportunity is with your loans, especially with rising interest rates around the country. When choosing a mortgage lender, make sure it matches your goals.
Before opening the loan, review the lender’s policy on refinancing and make sure that you’ll be eligible and that their policies will work out in your favor overall. For example, if you choose a lender that offers a 4% loan instead of a 4.5% loan but the fees and interest rates for a cash-out refinance will cost more than that 0.5% difference, you could spend thousands unnecessarily.
Do your homework ahead of time to avoid this!
Start Investing Today
Now that we’ve answered the question, “What is the BRRRR method?”, you can see why it’s such a popular investment strategy. It allows nearly anyone to build a serious real estate portfolio, especially if you buy the right place and lay the groundwork. Use these tips to your advantage and start growing your business today!
Stay up to date with our latest real estate investment tips and feel free to contact us with any questions!