BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat.
A BRRRR property strategy is extremely similar to house flipping. It focuses on purchasing properties that are not in good shape and fixing them up.
However, instead of reselling for a one-time profit, the homeowner rents them out and generates income.
How does BRRRR property flipping work in practice? This blog post explains.
What is the BRRRR property method?
The BRRRR method means “buy, rehab, rent, refinance and repeat”. It is an effective way used by many investors who wish to build passive income over time.
The acronym represents the steps and the order they should be completed in.
BRRRR is a very effective property investment strategy that allows homeowners to develop a portfolio quickly using very little initial investment.
The typical property value doubles every ten years. There is a saying in property that “it is better to spend time in the property market, rather than trying to time it.” This strategy means property investors can benefit from the long-term effect of the market and take advantage of short-term cash flow gains.
What does BRRRR stand for?
This acronym lays out each step that the method requires in order.
Buy, Rehab, Rent, Refinance and Repeat
Buy: Investors that are using this method shouldn’t just buy any property. It needs to be a shrewd investment – Wealth Through Property can help with this. This means doing research, creating a timeline for renovations and how soon the property can be rented out.
Rehab: This strategy involves determining the method for renovating the property. This means choosing whether to do the work for yourself or hiring professionals. This means identifying the best ways to make the property liveable and attractive to renters within an efficient timeline.
Rent: When the rehab is complete and the property is liveable it can be rented out as quickly as possible. The property can be rented out by the homeowner or by using a property management company.
Refinance: With the renter in place, it becomes a waiting game whilst equity is built on the property. The next step is refinancing, specifically on cash-out refinancing. This allows the homeowners to tap the home equity to withdraw cash for any different purpose. Different lenders will have different guidelines about how long a property must be owned for, or how much equity must have accrued, to qualify for this kind of refinancing.
Repeat: The last step is the one that makes BRRRR appealing and potentially lucrative. The cash from the refinance can be invested in a new property and the whole process starts over again.
What are the advantages of property flipping BRRRR?
Benefit 1: Leveraging finance
Money that isn’t your own can be leveraged to buy investments, which is not possible on the stock market. The benefit of property investing is that it is asset based lending (known as secure lending) which is lower risk for banks and investors.
The banks are prepared to lend up to 75% of the property costs meaning that only 25% is needed up front. Thus, it is possible to buy four homes at £100,000 each with 4 x £25,000 deposits.
Benefit 2: Supply Vs demand
Everyone needs property and the current climate indicates that there will be more renters on the market.
Property prices double every ten years. In the 1950s a house in London could be bought for £2500 and now houses in the capital city at less than £400,000 are scarce.
Benefit 3: Cashflow and capital appreciation
This type of property strategy means the homeowner can benefit from monthly cash flow whilst also benefiting from capital growth of the house.
To give a quick example, if a property is bought for £100,000 and gained £300 a month net rental income, it gives an annual net rental income of £3600. If the property prices went up 5%, this gives an extra £8600 after one year.
Who should use BRRRR property flipping?
The BRRRR method is perfect for investors interested in building a passive income portfolio from start to finish. This process is more demanding than a turnkey rental unit, though it can be highly rewarding.
Investors who are comfortable with a certain level of risk, have capital available for an initial down payment and who are ready to roll their sleeves up for some in-depth market research will be well suited to this real estate strategy.
Who will not be suited to the BRRRR property strategy?
The deciding factor in determining whether the project is right for you, is often the renovation stage. Those who are intimidated at the thought of managing a rehab but still want to implement the BRRRR strategy, are encouraged to build a real estate team.
Conclusion
The BRRRR strategy involves buying, rehabbing, renting, and refinancing an investment property, before repeating the process again.
By building equity in a property through renovations, investors can leverage the after-repair value to improve the property’s cash flow and invest in additional real estate by refinancing.
Although a certain degree of risk exists, potential downfalls can be mitigated through proper research and due diligence. It is crucial to identify on optimal rehab project within an optimal rental market. This strategy is perfect for investors prepared to double down on their planning to build a successful real estate portfolio.
To find out more about property flipping, enjoy this free webinar: The Ultimate Guide For Flipping Property For Profit in 2022.
For information on monetising deals and finding good deals, click here for the Deal Packaging Essentials course.
To learn the ins and outs of an effective refurbishment, try the Property Investing Fundamentals course.
To professionalise your property investing and grow your income producing asset, our Property Business Mastery course will ensure you take your property business to the next level.
For more information call us now on 01302 897131 or email office@touchstoneeducation.co.uk.
