You may have heard about the BRRRR Method. Maybe you heard it discussed on a real estate investment podcast. Maybe you read about it online. Led by rental property, the BRRRR Method can be a great way to invest in real estate when it’s done right.
In this article we’ll look at what the BRRRR Method is, as well as each of the individual steps.
What is the BRRRR Method?
The BRRRR Method involves buying a more affordable home that requires some TLC. After repairing and renovating the home, you’d rent it out and refinance the property to tap into the additional equity that you’ve gained by renovating the property. It’s that simple.
Now that you know what the BRRRR Method is, let’s look at each of the steps more closely.
The first step is buying a suitable property. This is arguably the most important step. The property that you buy will determine the success of your real estate investment.
When house hunting, always do your research. Look for a property that has good potential for an increase in property value and rental income.
Before you make an offer, come up with a realistic budget in terms of how much you expect to spend in home renovations and your expected profit margins. Be sure to keep a contingency fund of at least 20 percent in case your renovations run over budget.
Before doing a renovation, always crunch the numbers and look carefully at the value it will initially offer and whether the renovations will let you charge more for rent. There’s such a thing as overdoing it when it comes to renovations.
Once the renovations are done, next you want to rent out your property. This could mean finding tenants yourself or outsourcing it to a property management company.
Outsourcing most of this work to a property management company can save time. The expense is usually reasonable as well. Property management companies typically only charge a month’s rent for their services.
Even if you do outsource everything, it’s a good idea to give the final okay on the tenants at the end. Don’t forget the tenants are going to be living under your roof, so you want to make sure you can trust them.
Once renovating and renting out your property has been taken care of, next you’ll want to think about refinancing.
Each lender has different rules when it comes to refinancing. Some lenders may not like it when you refinance within a year. By working with a mortgage broker, a broker can help you choose a lender with a refinance policy that works for you.
Not all lenders let you borrow up to 80 percent of your property’s value. Some may limit you to 75 percent. Again, by working with the right lender, you can tap into as much equity in your rental property as possible.