You probably want to get into real estate to generate a steady stream of passive income - right? Look no further than the BRRRR Investing Method. BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. This tried-and-true method allows investors to continually acquire properties, build equity, and generate passive income while being infinitely scalable.
We’ve laid it all out for you here; each step of the BRRRR Investing Method, including tips and strategies to make it work for you, and help you build a successful real estate investing empire.
Buy: Finding The Perfect Property
The first step in the BRRRR process is to find a great deal on a property. This typically involves searching for off-market properties, allowing you to be one of the few (or only) investors contacting the property owner. This increases your chances of securing an attractive deal.
To find off-market property deals, focus on locating motivated sellers. These are property owners who may be more willing to sell their property at a discounted price due to various reasons. There are four main types of motivated sellers:
- Absentee Owners: These are individuals who own a property but do not live in it. They may be more willing to sell if they're struggling to manage the property from afar.
- Inherited & Probate Sellers: People who have inherited a property may not want the responsibility of managing it or may need to sell it to settle an estate.
- High Equity Sellers: These are property owners that have paid off most of their home (and therefore, owners who have a “high amount of equity”). Many times they can be older couples or empty nesters, and they may be more willing to downsize than other leads.
- Distressed Seller Leads: These sellers are experiencing financial distress and may be more motivated to sell their property at a discount.
You can find motivated sellers through various methods, such as using real estate lead generation software like Leadflow, skip tracing, or driving around neighborhoods looking for distressed properties.
Before purchasing a property, it's essential to estimate the rehab costs using a home repair estimator and determine the new property value with a comping tool. Running comps will help you gauge whether this investment property aligns with your financial goals.
Financing Your BRRRR Investment Property
With a promising property identified, you'll need financing to make your investment a reality. Here are three tried-and-true financing options investors use and trust when financing their investment properties;
- FHA Loan: FHA Loans are government-backed loans insured by the Federal Housing Administration.They’re designed to make buying a property more accessible for first-time buyers and those with poor credit. They often feature lower down payments and more lenient credit requirements compared to traditional mortgages.
- Traditional Mortgage: These loans are provided by banks and other financial institutions, usually featuring a 15–30 year repayment duration. Traditional mortgages often have higher down payments and stricter credit standards compared to FHA loans.
- HELOC: A home equity line of credit allows homeowners to borrow against the equity in their home. Investors often use HELOC loans to buy investment properties or cover large expenses such as home improvements or debt consolidation. HELOCs typically feature a draw period during which the borrower can access the funds and a variable interest rate.
Rehab: Turning a Fixer-Upper into a Dream Home
Rehabilitation is a crucial part of the BRRRR Investing Method, as it involves making necessary repairs and upgrades to increase the property's value and appeal to renters. Keep in mind that you should have already estimated your total repair costs in step #1.
Now that you’ve identified the property and developed a plan to finance it - it’s time to turn those dreams into reality! And that all starts with making it look better than ever.
Finding Reputable Contractors for Repairs
Hiring reliable and experienced contractors is essential to ensure quality work on your investment property. Here are some expert tips that should help you find the right contractor for your project:
- Consult with other investors: Reach out to fellow real estate investors for recommendations on contractors they've had positive experiences with.
- Read the reviews: Search for contractors in your area using something like Angie. Sift through the reviews; they should give you a sense of their reputation and quality of work.
- Referrals: Contact contractors directly and ask them to send you references from previous clients. If they’ve got references ready to go, it’s a good sign that you can probably expect high quality work from them.
- Verify licenses and insurance: Ensure the contractor has all the necessary licenses and insurance required for the work they'll be performing.
Rent: Finding Tenants For Your BRRRR Investment Property
With the property renovated and ready for occupancy, it's time to find tenants. Using the data from the comping tool, you can set a competitive rent price for your property. Here are five strategies to help you find the perfect tenants:
- Talk to real estate agents: Working with real estate agents can help you market your property to potential renters, and real estate agents can handle tenant screening off your plate. Keep in mind that using an agent may slightly reduce your profit margin.
- Online listing platforms: Platforms like Zillow, Trulia, and Craigslist allow you to reach a large audience of potential renters and can help you find tenants quickly.
- Social media: Utilize social media platforms like Facebook and Instagram to advertise your rental property to potential renters. Consider investing in pay-per-click (PPC) advertising to target interested renters more effectively.
- Networking: Connect with other real estate professionals, such as landlords, real estate agents, and property managers, to find new tenants. They may have a waiting list of potential renters and be willing to share this information with you.
- Referrals: Encourage your current tenants (in good standing) to refer their friends and family. This is one of the most cost-effective and efficient ways to generate high-quality tenant applicants.
Signing the Lease
Investors: it’s time to lawyer up. Have a lawyer review your lease agreement to ensure it complies with federal, state, and local laws and addresses all relevant tenancy issues. Investing in professional legal assistance can save you money and headaches down the road.
Refinance: Unlocking Cash for Your Next Investment
Refinancing a property in the context of the BRRR Investing Method involves taking out a new mortgage on a home that has been rehabbed and rented, allowing you to access funds for your next investment. This step lets investors extract cash while maintaining equity in the property. Typically, investors can expect to take out around 70-80% of the new appraised value.
The refinancing process includes gathering financial paperwork, comparing rates, applying for the loan, finalizing the transaction, and receiving the funds. It's essential to consult with experts, such as mortgage brokers or real estate attorneys, to ensure the process is executed correctly and to assess the tax implications of refinancing and how they may impact your investment strategy.
Repeat: Building a Real Estate Empire
By repeating the BRRR Investing Method, investors can continuously grow their real estate portfolios while generating passive income and accumulating wealth. Keep in mind that this strategy requires significant funds and effort, and thorough research and due diligence are essential before making any investment.
Remember - the BRRRR Method may or may not be suitable for everyone, so it's crucial to conduct thorough research and evaluate your financial situation before diving into any investments. But if you’re up to the challenge, and you’re looking for tools to help you get the job done - Realeflow is the ultimate software stack for investors to help them find and close more deals. Grab your 7-day free trial here!