The BRRRR Method:

Road to Financial Freedom?

By Mark Lemmons  I  February 23, 2022

I work with many people who are looking for smart ways to invest their money and build wealth. The BRRRR Method has become a popular real estate investment approach and you may be wondering if it’s right for you. In this post, I’m going to explain what the BRRRR Method is , what the challenges and opportunities are, and help you make an informed decision about whether or not it could be right for you.

white and red house

What is it?

BRRR stands for:

1) Buy

2) Rehab

3) Rent

4) Refinance

5) Repeat

BRRRR is a method of real estate investment that can yield high returns when done correctly. Let’s break it down.

Buy

The B in BRRRR stands for Buy. You can invest in real estate by purchasing a distressed property at a low price with the goal of renovating and flipping it to a rental property. A distressed property is one that is on the brink of foreclosure, is already owned by a bank or simply in disrepair, so they are available at a much lower price.

Rehab

The first R stands for rehab, which is different from renovating. The focus of the BRRRR Method is to rehab the property, restoring it to its original function. In other words, making it livable — think running water, working appliances, clean living space, electricity, and structural integrity. You only want to implement major renovations if they are truly going to add value in a re-sell. Typically, kitchen and bathroom renovations yield high returns.

white wooden cabinet near window
Rent

After the home has been rehabbed and/or renovated, you begin to rent out the property. The income from the rental enables you to pay the mortgage , and you can often make a monthly profit with the rent you are able to charge. During this time, you build home equity, which puts you in the perfect position to refinance the loan.

Refinance

Once you have established enough home equity, you can refinance the loan and free up some money . Refinancing your loan can lower your interest rate, lower your monthly mortgage payment, give you a faster payoff term, and even allow you to drop the cost of any mortgage insurance.

Repeat

You can put the cash savings from refinancing your loan toward buying another property and repeating the BRRRR method. Doing this process on repeat leads to owning multiple properties that will one day be completely paid off – and all of the profit from those properties will go straight to you.

aerial photography houses
Risks of the BRRRR Method

With any investment opportunity, there are going to be challenges and risks. Here are the ones that you need to think carefully about when it comes to the BRRRR Method.

Return on Investment (ROI)

If you aren’t experienced in real estate, you won’t know how to get the best return on a real estate investment. You want to work with a real estate agent with expertise in the area of investing in and flipping real estate. Otherwise, you’re taking a very expensive risk.

Loans

Unless you have a ton of cash laying around, you’ll be working with bank loans to finance your home purchases. Interest rates for short-term loans or hard money loans can be incredibly high. An experienced real estate agent who has solid relationships with lenders can connect you to reputable mortgage lenders and ensure that you secure the best loans possible.

two women talking while looking at laptop computer
Appraisals

Banks primarily refinance a property based on its appraised value , not renovations. There is always a risk that the valuation will be lower than you had hoped. Again, having a good real estate agent and mortgage company is key for making a good investment. They understand the appraisal process and can help you mitigate this risk.

Time

The BRRRR Method requires time. There is waiting involved in the rehabilitation process, the seasoning period (the amount of time the home has been owned or had a mortgage), and the process of finding and managing tenants. The BRRRR Method is a big investment that can yield big returns, but it requires time . You must be prepared to wait to see a return on your investment and spend time on rehabilitation and property management.

The BRRRR Method – Road to Dollars or Depletion?

So, is the BRRRR Method right for you? Here are a few things to consider.

1) Do you know a trusted contractor you can work with when it comes to home rehab and renovation? This is one of the largest risk factors, and having someone you can count on can make or break your investment

two gray wooden doors near brown painted wall
2) Do you have a plan for managing your rental properties? Filling your properties with quality tenants in a timely fashion will be key in making your investment worthwhile. If you don’t want to manage the property, you’ll need to find a management company and factor that cost into your investment.

3) Do you have a trusted real estate agent who has personally done the BRRRR Method? If so, you can lean on them for 1 & 2. They will have connections in these areas and will also help you manage other risks like appraisals, loan structures, and wasted time.

If you haven’t already guessed it, I’m a proponent of the BRRRR Method if you have a real estate agent who can help you execute your strategy. If you’re interested in discussing the BRRRR Method further, reach out to me. I’ve personally used the BRRRR Method to build wealth and have helped others do the same. And, if the BRRRR Method isn’t right for you, you might be interested in participating in one of my lower-risk multifamily investments.

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