By Lonnie White
WHAT IS BRRRR??
If you're on this page, you've probably come across the acronym BRRRR at least once in your lifetime. No, BRRRR is not in reference to Gucci Mane the rapper; BRRRR is actually a lot more than a popular ad lib. As you can see from the image to your left, this special ad lib stands for buy, rehab, rent, refinance, and repeat. In this article, we'll address the 5 pieces of the famous BRRRR so that you can implement this investment strategy into your game plan. Keep scrolling and find out just how this method is used by the industry's most savvy investors.
BUY:
Every BRRRR begins with a purchase. Whether you're buying a property with cash, hard money, private lending, or seller financing, the most important thing is that you're buying a good deal. In layman's terms, a bad deal is just a bad deal. Make sure whichever investment property you purchase is below market value with enough of a spread to make sense. If the numbers don't make sense, they just don't make sense. No big deal just go find a better deal. Lastly, never forget that there is almost nothing you can do recover from simply paying too much for a property.
REHAB:
The rehab on your investment property will be by far the most crucial portion of your BRRRR. Not only is this step time consuming, but it also requires a solid strategy to ensure you achieve a high return. When approaching your property's rehab, there are 3 very important questions which ALWAYS need to be addressed.
What is required to make this property RENT READY?
Which renovations will add the MOST value?
Which renovations will add MORE VALUE than their cost?
RENT:
Renting is a major component of the BRRRR and it is crucial to find solid, good paying tenants. One way to make sure you secure quality tenants is by having a sophisticated screening process. Make sure you diligently screen your applicants so that you're moving in responsible tenants to your home. This step is extremely crucial because banks want to see a consistent rental period. The rental of your property at the correct price point enables you to force appreciation of your investment property so that when an appraisal is conducted it is valued appropriately.
Qualities of a "Good Tenant"
Good credit score
Solid employment history
No prior evictions
Positive & verified references
REFINANCE:
You have purchased the house, renovated the house, rented the house, and now you've arrived at step number 4 (REFI $$$). When most people hear of refinancing they typically think of lowering their interest rate. In regard to the BRRRR, the refinance strategy used is much different than your traditional refinance. What you will use in this strategy is the famous "CASH OUT REFINANCE."
What is a "CASH OUT REFINANCE?"
A cash out refinance is when you borrow on the appraised value of the home rather than the money invested into the property. This method enables you to extract the equity out of your property. In most cases, the lender will allow you to pull out up to but usually no more than 80% of your home's appraised value. This is why it is imperative that your property appraises well. The purpose of the cash out refinance is not only to pull all of the capital you've invested, but to put you in a position to purchase another investment property.
REPEAT:
Repeat, repeat, repeat, repeat, repeat. When you've successfully executed the cash out refi, the next step is to repeat the process. Although every deal varies, reflect upon everything you've learned from this experience and apply that knowledge to your next flip. The goal with the BRRRR strategy is to build wealth through continuously acquiring properties. This strategy enables you to use one investment to fund your next investment and so on and so forth. Diligently track your progression and identify how to streamline your process. Master your process and you'll master the BRRRR.
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