For those wondering how to build a real estate portfolio with little money, following the BRRRR strategy can be a great way to achieve that. If you’re not familiar with BRRRR investing, it’s an acronym that stands for “buy, rehab, rent, refinance, repeat”. The way it works is simple. First, you buy an investment property and fix it up. The rehabbed property is then rented out to make rental income and build equity. Then, you refinance it to buy a second investment property, and so on.
The BRRRR method is not a get-rich-quick scheme. Still, real estate investors have followed it for years as it allows them to build wealth from buying multiple rental properties even if they don’t have a ton of cash. This doesn’t mean that this is a guaranteed real estate investment strategy for success as we have heard stories of people who have made mistakes which led them to fail at BRRRR investing. To ensure that you don’t fall for the same mistakes, keep reading as we share our tips for how to win at every step of BRRRR real estate investing.
Buy: Find Property Below Market Value
The first step of the BRRRR method is to buy an investment property. What beginner real estate investors need to keep in mind is that not any property works for this method. You need to find a cheap property for sale that is below market value and has rehab potentials. Distressed properties like foreclosures and short sales are good examples of properties to target for BRRRR real estate investing. Remember that your goal isn’t to fix-and-flip the property, but to rehab and rent it out. As a result, as you’re doing your property search, you also need to know how to analyze real estate deals to make sure you’ve found the best one.
Related: 6 Best Hacks to Finding Homes Below Market Value for Investment Properties
You can find great deals for BRRRR investing through driving for dollars, the help of an agent, searching on the MLS or right here on Mashvisor. We offer a number of real estate investment tools that help you in this step. You can use the Property Finder to find homes for sale within your budget in your location of choice. If you’re specifically looking for distressed properties for sale, you can easily find them in the Mashvisor Property Marketplace. To learn more about our tools and how we will help you make faster and smarter real estate investment decisions, click here.
Rehab: Stick to a Budget and a Time Frame
After buying a rental property, the next step is to rehab it to increase its value. Again, this is not a fix-and-flip, so you shouldn’t spend too much money and time on rehabbing a property for the BRRRR real estate strategy. Instead, focus on necessary renovations that’ll make the property livable, make finding tenants easier, and add to the amount of rent you can charge. For example, you can add value to your investment property on a budget by:
- Replacing the heating system
- Repairing the leaky roof
- Fixing the kitchen
- Repairing broken gates and fences
- Refinishing hardwood floors
The real estate rehab process should also be done in a way that doesn’t take too much time. After all, time is money in BRRRR investing. Meaning, the longer rehabbing a property takes, the longer it is before you can get your money back for buying a second rental property. The best tip here is to hire a good contractor, handyman, or subcontractors who’ll help you save time and money.
For more information, read our Real Estate Investor’s Guide to Rehabbing Property in 9 Steps.
Rent: Focus on Making Positive Cash Flow
Once the rehab step and renovations are done, you should put all your efforts into finding tenants to rent the property. While you should aim to rent out the house ASAP, you should not forget about positive cash flow. The more money the rental property makes each month, the more likely the bank will refinance it. So how can you ensure having positive cash flow properties? Cash flow is the money you have left after subtracting rental property expenses from rental income. So the first tip to make positive cash flow is to make sure your rental income can cover all expenses and allows for profit. Looking at real estate comps in your area helps you find the right rental rate to charge from tenants and have a high rental income.
The next tip to generate positive cash flow from BRRRR investing is to keep an eye on your rental property expenses and try to reasonably cut costs as much as possible.
An easy way to calculate your rental income and expenses to ensure positive cash flow is to use the Investment Property Calculator. This tool provides readily calculated data for comparable rental income based on real estate comps. What’s more, it also provides a breakdown for rental property expenses AND a return on investment analysis including data for cap rate and cash on cash return. You’ll get these numbers even before you buy the investment property to ensure that the BRRRR strategy will be successful.
Refinance: Get Pre-Approved Before Buying
This step of the BRRRR real estate investment strategy is where you find out how well you did. The tip for success here is to get a high appraised value to be able to recoup as much money back as you can in order to repeat the process. However, one huge killer of the BRRRR method is to put a lot of money into a real estate deal and not be able to pull it out. In order to avoid this when refinancing rental properties, our tip is to get pre-approved for a loan before making an offer on a rental property. Talking to lenders ahead of time allows you to know what LTV they offer, what interest rates, closing costs and, most importantly, the length of their seasoning period.
Related: 7 Types of Investment Loans for Real Estate Property
In BRRRR investing, the seasoning period is simply how long after buying a rental property you have to wait before you can refinance it. Typically, seasoning periods last for 4-6 months. You can think of this as the period of time you need to finish rehabbing a property and finding tenants to collect rent which you can use to pay for the mortgage. In addition, find lenders that offer higher LTVs – the higher, the better. This is because the more value you add to an investment property through renovations, the more money you can refinance and reinvest following the BRRRR strategy in real estate.
Repeat: Build a System
The final step of BRRRR investing is the most fun for real estate investors. After receiving the money from refinancing rental property, you can start the cycle once again. For those who want to build a real estate portfolio and perfect the BRRRR method, the repeat section is what it’s all about. Here, you’ll take what you’ve learned from your first experience and put it back into action as you go about buying a second rental property. But in order to make this last step a lot smoother, our tip for success is to build a system.
Systems enable people to achieve the same goal by repeating the same process over and over again. They cut down on stress and mistakes. The more documented your system is, the less you’ll worry about missing, overseeing, or forgetting about something. A documented system also allows you to scale and not have everything fall on you as an investor. Meaning, other people can handle parts of your system while you focus on the more important steps of the BRRRR real estate strategy like finding the next real estate deal or finding a lender.
The Bottom Line
It should go without saying that BRRRR investing is one of the best strategies to follow if you’re just getting started in real estate. This is especially true for those thinking of buying multiple rental properties without having to spend all of their money. When done right and planned correctly, a real estate investor has the possibility of getting a high return on investment. Want to start your search for an investment property to buy, rehab, rent, refinance, and repeat? Click here to start looking for a profitable below market value property with Mashvisor now.