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What is a BRRRR?

Do you have a client that is talking about doing a BRRRR? Are you curious about finding creative ways to invest for yourself? The BRRRR, a term coined by Brandon Turner of BiggerPockets, stands for “Buy, Rehab, Rent, Refinance, Repeat”.

BRRRR is process by which an investor can purchase and rehab a property, pull their invested capital out through a refinance, and still have a cash flowing rental property with zero of their cash still tied up in the property.

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Buy

The first step (and arguably the most important) in a BRRRR is the purchase, or “buy”.

To make a BRRRR deal work, you must buy the property for the right price. If you over pay, then you run the risk of leaving too much money in the deal or not making a profit.

A general practice used by many of the more successful BRRRR investors I’ve worked with is using somewhat of a backwards approach to calculating purchase price.

Running Comps and Finding an Accurate ARV for a BRRRR

We run comps on properties in the area that are similar to what the finished property will look like to arrive at an after-repair value, or ARV. Using this ARV, we then subtract the estimated cost of rehab to arrive at our maximum acceptable offer.

Typically, it is wise to include some cushion in there and offer below your maximum number.

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Rehab

During the rehab phase, it is important to balance speed, budget, and quality.

In order for the BRRRR to make sense, it must be done fairly quickly so that your money can be pulled back out to do another one. Alternatively if you are using hard or private money, you want to finish as quickly as possible due to your high holding costs.

Interior Finishes for a BRRRR

In a BRRRR, it is crucial that you do not renovate the property too little or too much. The ideal rehab puts the property at the same level or nicer than those available nearby.

Vinyl plank flooring, stainless steel appliances, granite countertops, and light grey paint on the walls is a safe base to start with. Don’t go overboard with high-end appliances and fixtures when the value model gets the job done for a better price.

Make sure that the quality of the property is clear when looking at it from the eyes of a renter or appraiser. Work with your general contractor to design a solution that works for your budget and goals. I recommend getting at least 3 bids for the job. It may take a few tries, but it will lead to a better outcome in terms of budget, timing, and quality.

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Rent

Once the property is rehabbed and ready for move-in, get it listed on Zillow, Trulia, and Facebook for rent. Do your best to get it rented for market rent, but do not be afraid to slightly discount rent in order to get it rented quickly. It’s preferable to have a property rented for slightly below market than one sitting vacant collecting no rent.

Hiring a Photographer to Get Your Property Rented Faster

To get your property rented for the highest amount the quickest, invest in professional photographs. The increased photo quality will lead to more clicks, tours, and a lease signed much faster.

Refinance

After renting out your property, you should be bringing in positive monthly cash flow. You can then take this to your lender and refinance the property at its ARV (after-repair value).

Depending on the lender, they will appraise the property using one of two methods. The first is the sales comparison approach and compares it to similar properties that have sold nearby. The other is the income approach, and is solely based on the income that the property is producing

If you are taking out a residential mortgage, your lender is most likely valuing it using the sales comparison approach. If you are financing it with a commercial note, it will be valued based on the cash flow it is producing. Here are a few ways to increase appraised value!

The Goal of Refinancing After Rehab

The purpose and goal of refinancing after rehab is to pull as much of your capital back out. The BRRRR is beautiful in that it allows you to assemble a portfolio of cash flowing properties without leaving large sums of your money tied up in the deals. It is a superb way to quickly grow a portfolio and take profits along the way.

Repeat

Once you pull you money out of your BRRRR, it’s time to do it all over again. It is easy to see why BRRRR investors love the method. Using the same capital, you can grow a whole portfolio without extended periods of saving for down payments along the way.

Have you done your first BRRRR, or are you looking to do your first BRRRR? Let us know in the comments below, and tell us what you love the most about BRRRRs! Wanna learn more about BRRRR’s? Check out David Greene’s great article on how to succeed in real estate with BRRRR’s.

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Matt Moreland
Matt Morelandhttps://www.mattmorelandrealtor.com/
Matt is a real estate agent, investor, and entrepreneur in Texas, where he lives with his wife and three children. When he is not working on The Agent's Archive, he is helping his clients acquire investment properties, guiding new agents as they enter the industry, farming wine grapes, or working on something for his winery. In his free time he enjoys homesteading with his family, hunting, swimming, and backpacking.
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