If you are interested in real estate investing, you must have heard about BRRR. Why are BRRR strategies becoming so common among experienced real estate investors?
In this article I’ll teach you about BRRR deals, how they work and how you can benefit from this strategy.
What is a BRRR Deal?
BRRR in real estate means buy, renovate, rent, and refinance. Sometimes it’s also called BRRRR, which means buy, renovate, rent, refinance and repeat. It stands for when people buy a property, renovate the property, find a renter and then refinance with a conventional loan for long-term cash flow.
The concept of BRRR is to help investors get into a rental property with little to no money down.
How Does BRRR Work
It may sound easy but BRRR can be complicated when you dig into each step. In order to get into the strategy with a higher success rate, I’ll cover each step in detail so you know what will happen before you dive in.
- Buy the property
The first step of BRRR is to buy a property. Buying a good property with a discounted price is the key to the success. Here is an article about how to find good properties to invest in real estate.
To make profit, you have to find a property and buy it at a good price. There are several scenarios that a seller would be willing to sell a property at a discounted price, such as divorce or the owner needs cash quickly, or the property has some problems. In these situations, you have a chance to negotiate a discount with the sellers so you can buy the property for less than what it’s actually worth and you have more margin to make a profit.
As we mentioned, the key concept of BRRR strategy is to invest in real estate with little to zero of your own money. Do Hard Money will fund up to 100% of your project costs, potentially getting you into a deal without pulling out your wallet. Also, I’ve written articles about how to do deals without using your own money as well!
- Rehab the property
A real estate rehab is a process to add value to the property through renovation. In this process, you make improvements to the property to increase its value.
This step usually involves a walkthrough of the property (first by yourself and then with a licensed contractor), developing a rehab checklist of the work that needs to be done, a budget to plan and control your cost, then working with your contractor to make the rehab process happen. After all of those preparations, the next step is just to actually work on the rehab.
- Rent the property
After you rehab the property, your property should attract higher paying renters because of the improvements and upgrades. Obviously, renting out the property is a great way to generate cash flow and increase your income.
In fact, there is another benefit of renting out your property. As your renters pay down your mortgage and the value of the property goes up, you can refinance your loan to take out cash or to lower your payments.
- Refinance the property
The last step of the BRRR strategy is refinancing. When you go to refinance the property, you will get a reevaluation of this property and get an appraisal. If you bought the property, then you will get a refinance of 80% or less with the purchase rehab and all the closing costs. This is what a hard money or private money lender can lend you.
Now that you have this cash-flowing property, it also makes your debt-to-income ratio look better. Now the loan is easier to qualify for, and you won’t have to bring cash to the table because you only need to borrow 80% of the property’s value.
Benefits of BRRR
Now that we’ve talked about how BRRR works, let’s talk about the benefits of using this strategy:1) no or little cash needed; 2) you get tax benefits; 3). Long-term cash flow & own the asset
Little cash needed
If you use this strategy correctly, you can start with little of your own money. Real estate investing always comes with unforeseen costs. But if you can find the right type of property and a good hard money lender, you can make enough profit to cover the cost and still make a positive profit.
That’s one reason you should find a hard money lender that will cover up to 100% of all your costs and not require you to make interest payments during the rehab. That way, your costs are extremely limited and you can pay them later out of your profits instead of trying to find the money along the way.
The BRRR strategy can give you tax benefits because you are not taking money out of the property. So you are only taxed on the income that’s generated on your monthly cash flow rather than on a big lump-sum profit like you’d have with a fix & flip.
In short, the BRRR strategy allows you to convert what would be a lump sum profit with a big tax bill into a long-term rental strategy with steady income and a lower annual tax bill.
Long-Term Cash Flow & Own the Asset
The main reason people get into BRRR is for the monthly cash flow and they’ll own a property that can appreciate in value over time.
Over time, you’ll be able to raise rents to increase your cash flow over time while your loan gets paid off at the same time! Eventually you’ll have an asset worth hundreds of thousands of dollars as well as monthly cash flow that’s pure profit.
How to get started with BRRR
If you are looking to get started with BRRR, try Do Hard Money as we provide a complete training system as well as hard money loans to help you get started. We don’t require any experience or a minimum credit score.
But the first step is always to find a property. Finding good properties in good areas will make great rentals thus making a successful BRRR deal.