When you love homes, it’s natural to want to be a part of making them even better. Maybe you see a property for sale in your neighborhood and can immediately envision what will help it reach its maximum potential – and how to make a tidy profit while doing so.
Real estate investing is an incredibly lucrative business, made all the easier when you truly love taking a shabby property and shaping it into a cozy abode. If this sounds like your idea of a dream occupation, then flipping houses may be the best way for you to join the real estate game.
The BRRRR method sounds exotic and intimidating, making you think of cold winter mornings rather than a hot real estate market, but it is actually an incredibly sound investment strategy that thinks of long-term gains rather than short-term losses. Today, we’ll explore exactly what this method is, then provide practical tips on supercharging your real estate strategy through a proven five-step process.
What Is the BRRRR Method?
The BRRRR method is an acronym standing for Buy, Rehab, Rent, Refinance, and Repeat; it guides you through each aspect of the real estate investment process, providing guardrails to help you succeed.
You begin by purchasing a distressed property with a loan: it could be a historic home in mild disrepair or a newer property that requires a total overhaul, stripping it down to the studs. This depends on how comfortable you are with renovations and your rehabilitation budget.
Next, you rent the property out to pay the mortgage and recoup the losses from your renovation before refinancing to get better terms. Generally, this is a cash-out refi, which gives you hard money to pour into your next investment, starting the process over again. After this, your first property becomes a passive income generator while you continually rehabilitate and rent new acquisitions, building your portfolio with proven winners.
Tips On Getting Started With This Revolutionary Investing Method
The BRRRR method is not for the faint of heart – nor is it for those newbie investors who aren’t quite sure how to properly assess a potential development. However, if you’re curious about this process, we’ll discuss some of the most pressing elements you should know before hopping into real estate.
Research the Local Market and Identify Properties of Interest
As with most things in real estate, the first component is market research. Be familiar with the rental market in the area, such as the average rental income and length of tenancy, as well as tenants’ rights and your obligations. These can be quite specific from county to county, so if you’re uncomfortable with the bylaws in a given area, consider shifting your focus to a nearby region.
You’ll also want to choose properties with a level of repair required that you’re comfortable with performing or that you can comfortably pay for with the cash you have on hand.
Pick the Most Lucrative Repairs
After you’ve fixed the most drastic concerns like wiring and roofing, you need to consider how to add value to the property, which will improve the rent rates you can demand. Projects with the best return on investment are similar for those renting as they are for those selling their homes, including updating the central heating and installing new siding. These can all be selling points for potential tenants, who will be dazzled by their spiffy new quarters.
Know When to Refinance
In order to prepare for the next step of the method, you need to know when you’ll be able to do a cash-out refi that will get you better terms and provide the funds to purchase your next property. Generally, you want to wait until the loan has seasoned, and you will not pay any prepayment penalties, as well as for when the market is more conducive to refinancing. You should have built up enough equity to put down a sizeable amount on your next purchase by the time you consider refinancing.
Think Several Steps Ahead
The BRRR method is forward-thinking: you need to constantly be on the lookout for your next investment as you manage the needs of your current tenants.
Keep an eye out on market conditions and pay close attention to property value trends; while you might not be able to jump on the exact property you’re interested in, you can get a general idea of what to expect. Things like a large employer moving into the area can help you decide where to target your next investment, as people will naturally want to live close to work. You’ll also be able to see what neighborhoods currently in disrepair may improve in the next few years by paying attention to changing crime rates, neighborhood investments, and local economic conditions.
See the Wonders BRRRR Can Do for Your Financial Freedom
The BRRRR method enables you to develop a healthy portfolio of well-performing homes through hard work, ingenuity, and foresight. It’s a guiding principle requiring acumen and careful application, but one that has worked wonders for millions of savvy investors. Perform careful research before jumping in, and be open to shifts in your process; after all, BRRRR is about heating up your portfolio over time and building a steady foundation for success.
