How to Use the BRRRR Method in Real Estate Investment
Are you a big HGTV fan? Do you ever watch their house flipping programs and think to yourself: ‘I could do that!’ The truth is, finding success in flipping houses is easier than you might expect. All it takes is some careful research and planning to guarantee a solid return on your investment. Here’s your guide to how the pros do it.
The BRRRR Method
The majority of career home flippers use the same method to achieve their success: the BRRRR method. The BRRRR method definition is as simple as buy, rehab, rent, refinance, and repeat. This might seem easy at first glance, but there’s plenty that goes into each step to ensure that all goes well.
The first step of the BRRRR method is to purchase your property to flip. The flipping aspect is especially important in this step. You don’t want to buy a property that’s already move-in ready, otherwise, you won’t see as great of a return on your investment. You must find a low-cost property to rehab. This guarantees a low mortgage payment so that once you’ve rehabbed the house and raised the value, you’ll be pocketing a much higher percentage of the monthly payments from your renters, giving you a higher return on investment.
Now, finding the right property to rehab is easier said than done. There are plenty of properties that won’t be worth the cost of repairing and could end up losing you money. When looking at properties, consider bringing along an inspector or contractor that you trust. With their professional knowledge, they’ll be able to identify any structural issues with the home and can give you repair estimates, helping you make a more informed decision when deciding which property to buy.
You might be excited about this next step. Demolition and re-design can be an incredibly fun part of the process, but it’s also hard work. There’s a lot more that goes into it than swinging sledgehammers and comparing tile samples. The most important factors in determining your rehab plan are safety and functionality. You need to assess the structural integrity of the property and make decisions that help to support and improve upon it. Fixing the structure of a property can be a huge money sink—which is why it’s crucial to find a property with a solid structure when buying. Before you get started on your rehab, you should make a budget and stick to it as closely as you can. This will keep you from overspending and taking away from your return on investment.
This is a crucial step in the process. If you don’t find renters to guarantee a constant cash flow, then all of your hard work and your investments will have been for nothing. To decide on an appropriate rental amount, you should look at comparable properties within the area. See what prices they were listed at before going off the market. This will give you an idea of what you can realistically ask for from renters. When offers start pouring in, you must take the time to find the right renters for your property. Perform background checks and pull information like credit scores and history. You want to find the tenants with the most reliability to guarantee that you’re getting the appropriate return on your investment and won’t end up with any regrets. by
This is the step that makes the BRRRR method stand out from other investment strategies. Once you’ve found your renters and have secured a steady flow of income, it’s time to cash out. What you need to do is apply for a loan that is bigger than the amount that you owe on the principal balance of your original loan. The reason why you want it to be larger is so that you can use the difference as a down payment on your next property. Now, for this part of the BRRRR method to work, you must keep it in mind from the beginning. From the start, you need to plan by finding the appropriate lender. Some lenders have requirements that restrict your ability to cash out—sometimes making you wait before doing so. So, be sure you have a clear understanding of your lender’s requirements before accepting the initial loan.
This final step of the process is, well, to start it all over again. Once you’ve finished the BRRRR method, you should have both a positive cash flow from your rental property as well as a lump sum of cash that you can use to invest in another rehab property. By continuing this process, you will further expand your real estate empire, and you will greatly increase your net operating income.