What is the BRRRR method summary?
The BRRRR method is a form of real estate investment that involves buying distressed properties, remodeling them and renting them out, then refinancing and starting again with a new property. The idea is for it become an ongoing cycle that allows you to repeat the process over and over, making money each time.
The BRRRR method is a popular strategy among real estate investors that involves buying a property, rehabbing it, renting it out, and then refinancing to pull out your original investment plus any additional equity that has been built up.
What is the 1% Rule in BRRRR? The 1% rule in BRRRR investing is a quick method to determine how much rent to charge as a landlord. If you follow the 1% rule, the rent you charge your potential tenants should equal at least 1% of what you paid for the house, including renovation costs, repairs, and other improvements.
But how do you know if you've found a great deal? You've probably heard of the 75% rule before — it states that an investor should pay no more than 75% of the ARV (After Repair Value) of a property. For BRRRR, though, you'll also need to consider holding costs.
Here's one BRRRR method example: Imagine you find a fixer-upper for $95,000 and spend an additional $25,000 on renovations, making your total initial investment $120,000. After the improvements, the home is appraised for $160,000. You refinance, and the lender grants you a loan for 75% of this ARV, or $120,000.
Cons of the BRR Method
High upfront costs. One of the biggest challenges of the BRRR method is the high upfront costs associated with purchasing and rehabilitating the property. Investors will need to have significant funds available or be able to secure financing to cover these costs.
The BRRRR method, if executed correctly, provides a continuous stream of funds indefinitely, in contrast to the one-time profit of a flip. Nevertheless, both strategies offer opportunities for quicker cash and potential leverage. The goal remains the same: to create equity and capitalize on that profit.
The 70% rule helps home flippers determine the maximum price they should pay for an investment property. Basically, they should spend no more than 70% of the home's after-repair value minus the costs of renovating the property.
The BRRRR strategy is an effective way to buy and hold investment properties with easier access to your capital since you don't need to sell the property to get money or pay short-term capital gains taxes, which reduces your upfront profit.
R Stands For Repeat
This strategy can be repeated infinitely, thus multiplying your income without tying up cash. The BRRRR strategy is a solid method for building wealth and a real estate investment portfolio of rental properties.
What is the 50% rule in real estate?
The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.
The best way for investors to find BRRRR properties is to seek out off-market real estate. Methods for locating these types of properties would be utilizing a direct mail campaign, partnering with real estate wholesalers, using the driving for dollars strategy, posting bandit signs, and visiting estate sales.
How Much Money Do I Need to Started The BRRRR Method? The amount that one needs varies, but it is usually about $50-$150K at a minimum because these numbers reflect what would be needed if purchasing another real estate property using BRRRR investing.
With so many ways to approach real estate investing, it's important to have a detailed strategy to guide you through every step of the process. For many investors—including beginners—the BRRRR method is preferred.
All in, you're looking at around 4 months to buy a property and refinance it, and that's probably on the optimistic side. At that rate, 2-3 properties per year seems more realistic (and still great). But I've seen people who claim to have picked up 5 or 6 properties in a single year using BRRRR strategies.
Example of the BRRRR Method in Action
Buy: The investor identifies a property with multiple suites listed for $1,000,000 in a desirable location. The property consists of four separate units, each generating rental income. After conducting thorough research and negotiations, the investor purchases the property.
House-flipping gross profit and return on investment
The average return on investment (ROI) for house flipping in 2023 was 27.5%, and the average gross profit was $66,000, according to Attom. Popular as it is, house flipping has become less profitable over the past several years.
Prospective flippers wondering how to get a house for cheap should look for “Real Estate Owned” (REO) properties or properties held by lenders or guarantors due to defaulted loans. These can be excellent choices for flipping, as they tend to be underpriced and behind on upkeep, so they'll benefit from rehab.
The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.
How long does BRRRR investing take? Ideally, you should aim to complete a BRRRR project within 4-12 months. The timelines are very similar to what you would aim for when completing a fix and flip.
Who came up with BRRRR?
The BRRRR method was created by Robert Kiyosaki in his book “Rich Dad Poor Dad” and is used by many real estate investors today. The BRRRR method is an acronym that stands for Buy, Rehab, Rent, Refinance and Repeat.
The BRRRR strategy can still be a viable investment strategy in a high-interest rate environment, but it requires careful planning and adaptability.
Step 1: Buy
Most BRRRR investors take out a purchase-renovation loan: see our Investment Property Loans page for a comparison chart for purchase-rehab loans. The good news is most hard money lenders (including LendingOne and Kiavi) allow you to borrow 100% of the renovation costs.
When we're cold, our muscles tense up, and our bodies start to shiver. This shivering is our body's way of generating heat to warm us up. The “brrr” noise is thought to be a byproduct of this shivering. As our muscles contract and relax rapidly, they create vibrations that can be heard as a sound.
In fact, in marketing, there is a rule that people need to hear your message 7 times before they start to see you as a service provider. Therefore, if you have only had a few conversations with the person that listed with someone else, then chances are, they don't even know you are in real estate.
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