Share: The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Method is a real estate investment strategy that involves flipping distressed property, renting it out, and then cash-out refinancing it in order to fund further rental property investment.
Before we dive into the details, let's address the fact that, yes, BRRRR is a legitimate and viable real estate investment strategy for the right person. With the right knowledge and tools, anyone can implement this strategy successfully.
BRRRR investment typically requires two different types of loans. When you buy the property, you take out an interest-only fix and flip loan to cover the cost of the purchase and renovations. Then you will refinance to a long-term rental loan with a lower interest rate and full amortization.
BRRRR is an acronym (first coined by Brandon Turner of BiggerPockets), that stands for the following 5 steps in strategically investing in a rental property.
Loan terms
Cash-out refinance pays off your existing first mortgage. This results in a new mortgage loan which may have different terms than your original loan (meaning you may have a different type of loan and/or a different interest rate as well as a longer or shorter time period for paying off your loan).
There are two ways one can buy distressed property—via a bank auction or directly from the seller. The bank auction route is lengthier, with the bank releasing an ad, setting a date for the auction, inviting bids, collating the offers and then finally deciding who to sell the property to.
Like our fix-and-flip loans, a BRRR Loan provides financing for a borrower to buy a property and renovate it. Then, instead of selling the home once renovations are completed to pay back the loan, the borrower rents out the home as a way to increase collateral value and earn additional rental income on the property.
Leverage uses borrowed capital or debt to increase the potential return of an investment. In real estate, the most common way to leverage your investment is with your own money or through a mortgage. Leverage works to your advantage when real estate values rise, but it can also lead to losses if values decline.
Low interest rate: Cash-out refinances have lower interest rates than credit cards or personal loans, which can make them a cost-effective option for financing projects like home renovations. ... Longer repayment term: Because a cash-out refinance is essentially a new mortgage, you'll have 15 to 30 years to repay it.
A distressed property is a home on the brink of foreclosure or already owned by the bank. Investors often seek these properties out because of the opportunity to buy a home at a discount. However, they're taking a risk that the property might need significant repairs.
When deciding how much to offer on the home, follow the 70% Rule in real estate. Avoid investing more than 70% of the property's ARV. For example, if a home's ARV is $300,000, you shouldn't pay more than $210,000 for the home.
While the concept does indeed sound straightforward, investors often struggle to obtain the financing (loan) needed. Traditional banks and conventional lenders won't lend on these types of real estate investments. In fact, traditional loan programs will not help you BRRRR your way to wealth in real estate.
When you're ready to buy a second, third, and fourth property, your financing options are the same as they are for your first property. You'll need to meet the debt-to-income ratio, down payment, and credit score requirements for a mortgage for each new rental property.
Hard money refers to a currency that is made up of or directly backed by a valuable commodity such as gold or silver. This type of money is thought to maintain a stable value relative to goods and services and a strong exchange rate with softer monies.
The amount of rent you charge your tenants should be a percentage of your home's market value. Typically, the rents that landlords charge fall between 0.8% and 1.1% of the home's value. For example, for a home valued at $250,000, a landlord could charge between $2,000 and $2,750 each month.
A bird dog is a real estate investing term that refers to a type of broker or agent who spends their time trying to locate properties with substantial investment potential. ... The term "bird dog" is a reference to hunting dogs that point to the location of birds and retrieve any birds the hunter successfully shoots.
Bank websites. Some banks let you search for real-estate owned properties on their websites. Specialty real estate listing websites. Websites and companies that connect buyers with foreclosed properties, such as Auction.com, Hubzu and RealtyTrac, show listings for REO properties.
distress sale in American English
noun. a sale held for the purpose of raising money to meet emergency expenses and usually offering goods at a substantial discount for the payment of cash.
A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the balance remaining on your mortgage. If your mortgage servicer agrees to a short sale, you can sell your home and pay off a portion of your mortgage balance with the proceeds.
Mortgages on properties owned outright are treated the same as any other mortgage. For instance, lenders will carry out standard assessments, such as income, affordability, LTV (Loan to Value) and outstanding debts that you may have. In addition, you may be remortgaging for residential or buy to let purposes.
If you want to take out a mortgage on a paid-off home, you can do so with a cash-out refinance. This option allows you to refinance the same way you would if you had a mortgage. When refinancing a paid-off home, you'll decide how much you want to borrow, up to the loan limit your lender allows.