Brrrr Method
B- buy
R- rehab
R- rent
R- refinance
R- repeat
The key to the BRRRR method is to buy undervalued properties, renovate them, cash out the equity and buy another property.
Buy - You need to find a property that needs repair and renovate. Homes that can be converted to a duplex or triplex or needs work inside. The hardest part of the Brrrr is trying to find a house that is not overvalued. You need to add in the cost of the repairs to make sure the home will be worth more once you are finished.
Rehab - Repair and renovate to increase the value.
Rent - Rent needs to be enough to cover the mortgage payments, property taxes ect. Perform a market rents in the area first before offering on a property.
Refinance - Go back to the lender and refi the property to pull out the equity. Be careful because most lenders will not do a refi until after 1 year and you will need to show the increased value.
Repeat - Take the proceeds from the refi and start over again.
Before considering the BRRRR method you need to understand the pros and cons and decide if it’s for you.
The Pros
- If you can find a property at the right price you can make a lot of money from this method.
- You could have a better property than if you were to find one ready to go, plus you know the work that was done on the house.
The Cons
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Market can swing in the middle of construction and you will not be able to refi.
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Few lenders will allow you to refi the property after one year. Also, if property needs works you may find yourself looking at alternate lending or private lending until the job is complete. This can add up quick with fees and higher lending rates.
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If permits are required it can put up the cost very quickly not to mention delays waiting for the permits.
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Every construction project has unexpected cost that can eat up your profits.
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Cost of material and labour can quickly eat in to your profits.
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You will need to be liquid with cash to complete the project.
The Brrrr method is great in the right market and for the right person. The Brrrr method in the end is best for people in the industry that have the resources and experience with contracting or renovation work. It is really important that your numbers are laid out from the beginning with some play room.