BRRR isn’t necessarily a new strategy, but it’s one that’s certainly become more popular as the years go on! That’s why I figured I should put together an entire guide on how to find & evaluate BRRR properties!
BRRR stands for Buy, Rent, Rehab, Refinance. It’s a buy & hold strategy where you find cheap properties, fix them up, and rent them out at a higher price. It’s one of the more complicated strategies, as it involves even more steps than a BRRR deal.
Why do Investors Like BRRR deals?
It all boils down to one thing: Cash is King! I’m fond of that phrase, because no matter what investment strategy you’re doing, if you can get cash, you’re doing something right.
For example, having a property increase in value is amazing, but it’s still not something liquid that you can access immediately and use. However, with a BRRR strategy, you’re going to be banking on monthly, passive cash flow. That’s cash you can invest in another strategy right away.
How to Evaluate an Area for a Rental Property?
When I’m determining if an area is right for a rental property, the key is to figure out if a family with kids would 1) like to move there and then 2) stay there for a long time!
So much money is lost owning a rental by having vacancies. If you get low quality tenants because you’re in a cheap neighborhood, it doesn’t matter that you initially got a good deal on the property—those are going to be high maintenance, high vacancy properties, and those are incredibly expensive to maintain.
The question I always ask:
“Would I let my wife walk down the street at night by herself?”
If it’s yes, then we’re good. If it’s a no, then I’m going to pass on the deal and find a different neighborhood for my rental property.
When I’m evaluating for crime, I’ll use a website like spotcrime.com or a similar service. It’s handy because you can find out the types of crimes as well. Every neighborhood has crime—that’s just the unfortunate fact—but there’s obviously a big difference between a murder and some vandalism.
If the crime in the neighborhood are misdemeanor/non-violent crimes, then you’re okay. Look for things like vandalism, petty theft, domestic disturbances, and other similar crimes. When you start getting violent ones, then consider a different neighborhood.
My simple rule of thumb is that if there’s a busy street in front of the house, I’m not going to do a deal there! Like I mentioned above, families are going to think twice about renting a house where there kids could wander out and get hit by a car.
I have had successful properties where there were busy streets in the back, but there needs to be a solid wall. This way it’s quieter and keeps the kids from roaming into the street.
Of course it’s pretty easy to get a feel whether it’s a loud and dangerous street just by standing in the front yard of the property, but multiple lanes and double yellow lines are warning flags that should have you moving onto another property.
To be honest, this is usually the first thing I look up because it’s easy to find information, and it’s a great all-in-one indicator!
Typically a great school district will mean low crime, lots of stable families (less move-ins and move-outs typical of a high rent neighborhood), and just an overall high quality neighborhood.
Start out by looking at websites like greatschools.org and then you can know whether to keep assessing the neighborhood or move on.
Close to Commercial…But Not Too Close
I tell this story a lot, but I bought a property for a fix & flip close to a Burger King. Three houses down in fact…it was so close you could smell burgers at 7am, and sitting on your porch at night would give you a sunburn from the neon sign.
I got a great deal on it, so I thought I was golden!
Of course I underestimated how much people did NOT want to live there! I basically broke even on the deal, which is a huge bummer after spending months on it.
So if you can see a 7/11, a grocery store, fast food, etc., then stay away! Those will drive down prices and lower the desirability of the area.
However, people also don’t want to be isolated. If you’re trying to rent out a house on the side of a mountain, you might get lucky and find a family that loves it there and will stay forever. But if they have to drive 20 minutes just to get groceries, most people won’t even consider the property. It’s not worth the risk.
Remember, people want to be semi-close to grocery stores, entertainment, gas stations, employment, and those sorts of places. Just not on the same street and not too far away.
This might sound hypocritical because this is going to be rental property…but you don’t want to be in a neighborhood that is more than 30% rentals!
This makes a neighborhood less desirable because families like stability around them. You want neighbors that will be there for awhile that you can get to know and their kids can get to know. It’s hard to make friends if everyone’s moving in and out every year.
Also, owners take more pride in their properties and take better care (typically) then renters do. You can usually drive around and get a feel if it’s mostly rentals or not. Really, that’s what we want—tenants who will act like they own the house. They’ll fix things, mow the lawn, and keep things clean. I’ve even had tenants tell neighbors they own the house…and I couldn’t care less. I WANT them to act like they own the house.
In fact, my average tenants stay in the house for FIVE years. That’s profitable. So even though I have renters, they don’t really act like renters, to be honest. It’s because I find great area, and screen my tenants…and I also lower the rent to decrease vacancy.
This is simple…if the tenant is going to be hearing trains all day and night…and they have kids…and don’t want to have to wait 5 minutes for one to pass…then you should probably stay away from this deal.
A good rule of thumb: if something about the property, or something close to it, annoys you, then it’s likely going to annoy potential tenants.
Boarded Up Homes
Boarded up homes are a sign of either vacancies, or someone unlawfully trying to move in and keep out the wind and cold. If there’s even one on the street I’m looking at, I’ll pass. If there are one or two within five blocks, I’ll still consider it, but it’s still a mark against that neighborhood.
Similar to what we’ve been talking about, if you see vandalism on any nearby homes, I’m outta there. If there’s even one on the street, that looks extremely bad for the neighborhood.
If that seems harsh, think about it like this:
If you went for a walk with your family down the street, and you saw one house that had boarded up windows, or graffiti, or even just a bunch of overgrown weeds and garbage, it looks terrible right? It certainly lowers the quality of the neighborhood. That’s a house I’m pointing out to my wife and we’re talking about it.
Why Is This Deal So Good?
Here’s perhaps the main point of all of this…
You’re looking for discounted properties, right? Whether you’re doing a fix & flip or a BRRR deal, you’re still trying to maximize your profit margin by finding deals that are selling considerably lower than a fixed-up comp would sell in the area.
So always ask yourself…
“Why is this deal so good?”
There should always be a legitimate reason. Something like:
- The owner is moving to a nursing home and needs to sell the home quickly in order to pay for it
- The owner died and his four children want to sell the home without taking the time/effort/money to fix it up
- The couple is going through a divorce, and just want to move on.
- The owner started on some hefty home renovation projects but wasn’t able to finish them due to budget constraints.
And things like that! If the owner has legitimate motivation to sell, then you’re looking at a good reason for them to discount it.
If there’s no obvious reason up front…like the owner just wants to move, then be wary. Perhaps they’ve already been trying to sell it for a year and no one wants it.
Why is that?
Likely for one of the reasons above. Perhaps that Burger King three houses down has a much more detrimental effect on pricing then you first believed…not that I would ever do that….
Or maybe there’s a sewage treatment plant close by.
Or maybe traffic is abysmal and takes forever to get anywhere.
Or perhaps it’s just farther away from grocery stores and restaurants than most people would like.
Either way, be sure to take into account why you’re getting a good deal. I see too many borrowers see the good deal and plow right on ahead without figuring out why they got that great deal.
One quick example….
I had a potential borrower bring our company a deal.
It looked like a homerun. The comparable properties were at least $100k higher than the property was selling for. It was in a nice neighborhood, and located in a good job market and school district.
Then I pulled up pictures of the house.
The front door literally opened up to a 4 lane highway with a 55-mph speed limit!
And I mean literally. It was probably 10 feet at the most. You couldn’t park your car facing the house because your bumper would be in traffic. Anyone with kids would instantly walk away and laugh that a property like that even exists.
With that sort of property, I don’t care if you can get it for $10k. 99% of people won’t even consider the property.
How is it Different from a Fix & Flip?
When you’re analyzing an area, is it different when looking for rental properties vs a fix & flip?
Not really, to be honest. In both cases, you want stable, high quality neighborhoods. Ones where families will want to come and stay for awhile.
You need those good school districts, low crime, and great locations in order to attract renters or buyers.
However, the one thing I would check on are rental prices in the area. In some markets, for some reasons, rentals just don’t fetch as high a price as you’d think! Honestly, there isn’t always a rhyme or reason for this, but if the rental prices are much too low, then it may not be worth the trouble to fix it up.
But to be honest, if it’s a great place for a fix & flip, it’s nearly always going to be a great place for a BRRR deal.
What Kinds of Properties Looking For? (Light Rental Rehab is the Best)
Alright…so picking the right type of property will be a little bit different than with fix & flip.
With fix & flips, bringing your property up to the exact level of the neighbors is very important. You can’t overbuild, because people won’t pay a premium for features that no others houses have.
You don’t want to underbuild, because people don’t like moving into the worst neighborhood in the area—and it just makes sense financially to build it up nicer than that because you’ll be able to sell it for more.
But with a rental, getting the exact comps right isn’t as life-or-death as it is with a fix & flip. If you leave it slightly under the quality of the others around, it’s not going to submarine everything you’re doing. The renters aren’t concerned about resale value, and if the place is nice enough for them, then that works.
And also think about it like this:
With a fix & flip, you make all your profit all at once. You need to grab every last dollar you can out of that deal.
With a BRRR deal, you’re making passive cash flow for as long as you want it. If you make $25 less per month because you didn’t upgrade to a granite counter, that might be an exchange you’re okay with making.
You’re also projecting well out into the future. Rental prices always go up over time, so even if you don’t make quite as much passive cash flow right now as you’d like, in 5 years, you’ll almost for sure be making more. And keep it for 20+ years, and you’ll be making tons of money.
I guess the short way of saying this is that a fix & flip comes with an extremely short perspective, where BRRR investors are playing the long game.
Working off the last point, it’s often the most profitable for you to do light rehab projects. I’m talking about painting, changing out appliances, sprucing up some of the landscaping, and perhaps a bit of floor here or there.
These are ideal because less can go wrong. You don’t need as big a loan, it’s easier to manage the rehab, the rehab is shorter, etc.
A fix & flip needs to squeeze $50k in profit out of a deal, so big rehabs often makes sense. With a rental, you want to find properties that need less work. You don’t need to find as big of discounts when purchasing the property either (although the bigger the better, of course)
Go for “B-Class” Rentals
I also like to go for what I call “B-class” rentals.
In the most expensive areas, you’ll often find that the cost to purchase the property doesn’t make it worth it to rent it out. What I mean is that maybe you’ll find a location where rents are 50% higher, but the property costs 75% more to purchase. That doesn’t make good financial sense.
You also don’t want to be in “C-class” neighborhoods because that’s when you’ll find lower-class tenants, properties that need more maintenance, and higher turnover.
The sweet spot are the “B-class” rentals. These are often the blue-collar neighborhoods—responsible people who do okay and will take care of your property.
10 Finding Strategies I Love for Finding BRRR Deals
Here’s the section you’ve been waiting for…here are 9 ways that I love to use to find BRRR deals!
When someone dies without a will, the property goes to a probate attorney to try to figure out how to distribute assets.
When someone dies with a will, usually an estate attorney gets involved.
Either way, there’s often a property involved. When elderly people die, they’ve often been living in the same house for 30+ years and likely didn’t keep up on all the repairs.
The children who inherit the property often want to get their share of the inheritance and move on, especially if they had to come in from out of town.
If the property isn’t in any shape to sell as-is, then this is a prime opportunity for a real estate investor to get involved and help the family get some cash and move on. And of course, you get a profitable deal.
Driving for Dollars
Yes! I love this strategy!
I think this is the single best strategy for a brand-new investor to get started, because all it takes is time and minimal money. It’s something you can do during lunch breaks or on your way home from works and the weekends.
You’re going to drive around neighborhoods and look for vacant properties. They’re usually pretty easy to spot…boarded up windows/doors, overgrown lawn, mail coming out of the mailbox, newspapers piling up (is that still a thing?), and broken windows.
At this point, you can either skip trace and find the owners email & phone, or knock on the house and the ones around it.
Estate sales are like yard sales, except are done when the owner dies and the family is selling off the possessions. You can often find some great deals simply by asking them if they have a plan for what they’re going to do with the house.
Postcards to Out of State Rental Owners
Being a landlord is frustrating to a lot of people. Many people get into it, and then decide later it’s not for them! And successful owner/landlords who have many properties are often buying and selling.
And this is even more pronounced when the owner of the rental property lives out of state! It’s harder to manage properties this way, and they’re more likely to be frustrated.
Targeting these people with a well-written postcard can help you pick up a lot of deals—like I have with this strategy.
Bandit signs are those little signs that are placed on busy intersections. All you need is something like “We pay cash for houses,” with your phone number.
This is a quantity strategy—you can’t just place one where you think it will do well, you need to do 25-50. Place them at busy intersections, or outside payday loan shops, pawn stores, or even Walmarts.
Always check with your city regulations about placing these.
When a property is foreclosed on, the bank repossesses the property. These are called real-estate owned, or REO, properties!
In most cases, a bank works with real estate agents that specifically work with REO properties. Typically there will be a 30-day window where the house is being foreclosed upon that the owners have to get their stuff out.
I once built a relationship with an REO agent who would notify me when these properties were coming to market so I could get a chance to stake it out. I got at least 10 properties from him!
Develop relationships with divorce attorneys, and they’ll be able to pass along your info to couples in need of moving their property fast.
Same as with divorce attorneys…once you can build a relationship with a divorce attorney, they can help their clients move their properties fast to help them out of a tight situation. You pay a finder’s fee to them, and everyone leaves better off.
Roofing & Plumbing Companies
I mentioned this quickly before, but oftentimes people will take on big projects but won’t be able to afford to finish them.
For example, if someone hires a company to replace their roof, but then loses his job and can’t pay for the work, the roofing company will stop the work.
Same with plumbing, another monster project that can be expensive. And if you’re the owner in these situations with a half-finished roof or plumbing project, you’re often just better off taking what you can get for the house and moving somewhere else.
Difficulties of BRRR Deals
BRRR deals can be long and complicated affairs, but with a huge, long-term payoff in the form of equity in a property and month-over-month cash flow!
But, there is one step in particular that makes this strategy more difficult than a fix & flip: Refinancing the loan!
The problem is that some banks will flat-out refuse to refinance a hard money loan used to rehab a property. Many banks will also deny a refinance to someone who doesn’t have rental ownership experience!
So what do you do?
First, you need to make sure that you have a source of funding in place before you get into the deal. It’s true that you can always flip it later, but like I outlined above, you may not have choses a property that would give you max one-time profit, so that can turn out poorly for you.
At Do Hard Money, we help BRRR investors get refinanced with our partners. Now, you don’t have to sweat over getting the refinance because we’ll help you get set up.
When finding BRRR deals, often people overlook the part about analyzing the neighborhood! It’s sexier to just jump right to finding a great deal and jumping into it head-first.
That’s my advice with finding BRRR deals:
Be picky about the neighborhood. Would you actually want to live there long-term? If you did move there, would it be because you had to but then would move out as soon as you could?
Your answers will likely be similar to anyone looking to move in.
Anyway, I hope this guide to finding BRRR properties has been helpful! If you’d like another handy resource for finding deals, be sure to check out: How Do I Find Off Market Properties? 26 Strategies I’ve Used