So you have read all the books, conquered the mindset portion of your journey focusing on saving and living a lifestyle that is well below your means, and now you are ready to invest. What’s next for most people is the accumulation of a set monetary amount that you will invest into an asset. You worked overtime, got a side hustle and were able to save 10,000 to 20,000 dollars to put down on your first rental property and now you do so and feel great but there is one problem. You are out of cash once again and have to start this painstaking and tedious process over! You are not trying to buy one property you want financial freedom and to do so your portfolio must grow but how do you accomplish this in a timely fashion and keep the required energy, enthusiasm, and most importantly capital to do so? Let us introduce to you what is commonly known as the “BRRRR” method. This is as acronym that stands for Buy, Rehab, Rent, Refinance, and Repeat. We will show you how powerful this strategy is in hopes that you can implement it and in a way recycle your hard earned money using it over and over again to supercharge your investments.
This strategy works best with fixer upper homes that you can add value or forced appreciation to by rehabbing. Most people subscribe to the mantra of buying the ugliest house in the best neighborhood. Most of your money will be made on the purchase side rather than the selling side so getting a good deal is of the utmost importance taking into consideration your market, budget, what types of rehabs you are comfortable with, and the time period in which you are trying to do so. Let’s say you look through a realtor or on your own and you find a home that is not in terrible condition but is an eyesore for most investors. Perhaps the grass may be overgrown, the bathrooms need remodeling, a new roof is needed, and the exterior paint is in bad shape. The home is in a decent area but you are able to buy it at the discounted price of 50k because most homebuyers are scared away. You estimate that it will take $20,000 to rehab it but once repaired the “ARV” or “after repair value” will be $110,000.
Sticking to your estimated repair budget above of $20,000, you hire a good reputable contractor to complete the repairs and he does so in a timely fashion leaving you with a home that is like new and if done correctly should not need any major repairs hopefully for the near future.
Being that you did your due diligence in hiring your contractor or alternatively doing the repairs on your own you are left with a property that is clean, well-polished, and rent ready that any tenant would be glad and proud to call home.
Market rents in your particular area are around $1200.00 monthly and you find a nice tenant that you have properly screened and is well qualified to rent your property. Whether you choose to self-manage or have a property manager is a personal decision but either way you organize this rental so it runs as smoothly as possible bringing in cash flow and equity for you.
This is the exciting and life changing part to your investment strategy! So most banks generally lend about 70% of a homes appraised value. In the example above, your home’s ARV or after repair value was $110,000 which means that once refinanced 70% of this or $77,000 would be paid back to you. Now using the above numbers, you have 50k in the purchase of the home and 20k in total repairs for a grand total of 70,000. The beauty here is you just got paid $7,000 more dollars than your initial investment recouping all of your money and making a profit in the process but that just scratches the surface! You also have $23,000 dollars in equity that you have created from your rehab AND let’s not forget that you have a tenant in place in the property paying rent monthly netting you possibly hundreds of dollars in cash flow and ONCE AGAIN you have ALL your money back that you initially put in. This strategy allows someone else (your tenant) to pay down your loan, you to recoup or “recycle” your funds to do this over and over again, and if things go right possible appreciation of the property making it go up being worth more year after year than when you initially purchased.
While most of your friends and family who invest are caught in the cycle of saving, investing, and running out of money after each deal only to have to build from scratch again wouldn’t it be great to be able to use your capital over and over to build your portfolio. I think it is easy to see how the last part of the strategy is called repeat. Many people will ask how you even come up with the initial money to do the deal in the first place and luckily there’s hope for you if you don’t have the immediate funds available. Do you know anyone who owns their home free and clear? Ask them about attaining a HELOC or home equity line of credit to get it done. What about Hard money or private lenders? How about you and a few people you trust pooling your money together to do a deal? The point here is if u find the right deal the money will follow! If I told u I had a home that was valued at $100,000 that you could buy for $4500.00, would you get creative and find that money by whatever means to make it happen? I bet you would no matter whom you had to ask or how creative you had to become. Use that same energy in looking for great deals and I promise you finding the money will be the least of your problems. Now stop reading this and get out and find some deals friends!