BRRRR Baby It's cold out
The BRRRR Method
BRRRR Baby it’s cold outside! As I write this blog post, it is a frigid December day. But, that’s not the type of BRRRR that I’m talking about. Today we’re going to discuss the BRRRR Method. This is a long term hold strategy for real estate.
The best part about the BRRRR Method is that you can build your real estate portfolio, get passive income, and build equity all at once.
The BRRRR Method is an acronym for: Buy, Renovate, Rent, Refinance, Repeat.
This involves the whole buying process. From looking at properties, getting comps, making offers, getting an offer accepted (and under contract), doing your due diligence, and getting all the way to the closing. You are the investor and you are buying the property in this stage.
The BRRRR system relies on finding distressed properties that need to be rehabbed. You will need to get a home inspection and obtain estimates from contractors to assess the amount of repairs that are needed.
You also want to take into consideration the ARV (after repair value) of the property. Make sure that your sales price (that you buy it for) + the amount of repairs needed does not exceed the after repair value.
The ARV can be determined by finding the comps for homes in similar condition to what yours will look like when it is completely renovated.
This is the fun part! Renovating the home and designing it allows you to get creative. But, managing contractors can be tough. Contractors can often be overpriced and unreliable. It’s important that you get estimates from several contractors and compare prices for all work that needs done.
Some ways to find contractors include:
• Ask friends and family members for referrals of ones that they’ve used in the past
• Post on social media asking for recommendations
• Check out review websites like Angi (formerly Angie’s List) or Thumbtack
Once you find a good contractor, keep them. For example, if I need a reliable plumber in Pittsburgh then I can always count on Restano. They are available 24 hours a day and 7 days a week. It gives me peace of mind for all my Pittsburgh plumbing services.
After the property is remodeled, then you can rent it out. You can either do it yourself or have a real estate agent or property manager do it for a fee. This fee is negotiable, but it is usually the first month’s rent amount.
You can find comps to see how much similar rentals in the area are renting for. Look on rental websites to see what other landlords in the area are asking in rent. Be sure to look at the photos to see if the condition and number of bedrooms and bathrooms is similar to yours.
Make sure that the numbers work. You want to ensure that the monthly rent amount is enough to cover your mortgage, insurance, taxes, and expenses on the property. The property must cash flow positive.
Place ads and begin showing the property. You will need to screen tenants and do background/credit/employment checks. Once you find a tenant then you will both sign the lease. The tenant will move in and begin paying rent.
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During the Refinance stage – you will pull money out of the house from the equity. You bought the distressed house low and renovated it. Now you will get a loan from a lending institution (bank, credit union, etc.) to cash out some of the equity.
For example, you buy the house for $100,000 and put $25,000 in repairs. You are all in for $125,000.The ARV on the house is $225,000. This means that you have $100,000 in equity. Equity is the difference between what you owe on a house and the amount it is valued at in the current market.
In this stage you simply repeat the process. Take the money from the refinance and use it to buy your next property. Then start all over again with the Buy stage and keep going. Like an unstoppable snowball rolling down a hill. BRRRR that sounds cold.
Welcome to Hey Rich Girl!
Hey girl! I'm Cynthia Cuccuini, a self taught real estate entrepreneur. I've been flipping houses, landlording (Is that even a word)? and designing homes for over 10 years. Come along the journey as I educate entrepreneurs how to invest in real estate.