Spelling the BRRRR to understand the Real Estate method
Oh yes, you heard correctly, BRRRR. The acronym for Buy, Rehab, Rent, Refinance, Repeat is a five-step process used to grow a real estate portfolio quickly.
The idea is to buy semi-distressed properties at a low price, make repairs, rent it, and refinance to fund the purchase of additional properties.
It’s not an easy process, but if done correctly, the BRRRR strategy can provide passive income and is a great way to bankroll a rental property empire.
Let’s break down the steps.
1. Buy
The first step in the BRRRR process is to buy a property below fair market value.
The goal is to buy a property in poor condition that you can rehabilitate to its original state.
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This will take time, and resources, and require you to be intimately familiar with rental housing in your area.
Here are some indicators to take into consideration:
- Location
- Property Value
- Property Condition
- Cash Flow and Growth Potential
2.Rehab
In this step, you will rehabilitate the property to prepare it for renters.
Rehabilitating is different from a renovation which can sometimes include adding high-end finishes.
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Your goal should be to achieve the highest repair value possible without over-improving the property.
Be sure to have all your ducks in a row so you can turn these properties around quickly.
On average, it can take between 2 and 4 weeks to apply for and receive a building permit and up to 6 months to complete construction. Here are some ways to keep your rehab costs down.
- Obtain quotes from multiple contractors
- Consider alternative building products; granite vs. laminate
- Negotiate with suppliers
Rehabilitating the property will help build immediate equity, but only if you carefully budget your rehab cost. You have a greater chance of success if you select properties that need cosmetic or minor repairs.
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Stay away from properties that have significant issues, such as foundation, roof, or structural problems.
3. Rent
Your rehab is complete! Now it’s time to determine the rental price and find people to rent the home.
The rental payment will start an inflow of cash and make it easier to refinance your property.
Focus on making positive cash flow.
The 1% rule is an easy way to calculate how much rent you should charge. According to the 1% rule, the rent each month should be equal to (or greater than) 1% of what you paid for the house, including repairs and improvements.
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