What is the BRRRR method?

  • Byson Real Estate Co.
  • 04/7/22

If you're new to real estate investing, you should familiarize yourself with the BRRRR strategy. Like "flipping," which you may have seen on various HGTV shows, BRRRR is an abbreviated acronym that stands for Buy, Rehab, Rent, Refinance, Repeat. Anyone can employ this strategy to generate passive income and grow their real estate portfolio. 

The BRRRR Method Step-By-Step:

Buy

The first step to any deal is finding a potential property to buy. If employing the BRRRR strategy, you'll want to seek out properties that can be purchased at a discount and offer upside. Picture a distressed property that has received little to no renovations in the past 20-years. Once you've found one, the next step before purchasing should be to analyze the cost of the rehab, estimated vacancy loss to perform the work, and the potential increase in rental income. This allows you to determine if the project is a "go" or "no go." A quick check may be to apply the "70% Rule", which estimates the property's ARV (After Repair Value) to ensure that the property's purchase price never exceeds 70% of the ARV.

Rehab

Once purchased, you can start adding value to the property. This is often done by addressing the needed physical renovations, but you can also improve your net operating income by implementing annual rent increases, which prior owners may have neglected. All efforts and improvements should boost the value and desirability of the property to justify an increase in the rental price. Simply taking over the property and demanding a higher rent will not work. 

If you're less handy, you may opt to consult with a general contractor to quote the expected timeline and cost to complete the rehabilitation. You can also connect with a Byson agent who can offer insights on market rates and trends.

Rent

When you finish the renovations and obtain the necessary permits/certificates of occupancy, you can start to lease out the vacant units and negotiate renewal rates with tenants in place. 

If day-to-day leasing and property management isn't in your wheelhouse, consider hiring Byson to handle everything from leasing and marketing to collecting rent. 

Refinance

Once you've successfully leased your property, you can show the bank the value you've added in the form of a financial statement. With an improved net operating income, you'll be eligible for cash-out refinancing, which will allow you to pull out your initial investment. Unlike flipping, this can take time. 

Repeat

Once you've officially refinanced your property, the bank will pay you back the funds initially invested in purchasing it and renovating it. The refi-cash can now be put towards a new project. Hence, repeating the process.

Outlook

As with any investment opportunity, there's risk and reward. The BRRRR method is not infallible. Unexpected issues, increasing costs of goods, and external market changes can always impact your bottom line. 

However, implemented successfully and with the right team, this strategy can create a steady passive income stream and lend itself to portfolio building.

If you are considering undertaking a "BRRRR-like" investment rental property in New York or Colorado, contact Byson to be connected with a knowledgeable agent ready to work for your best interests.

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