The BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat is a powerful framework that helps real estate investors build wealth and grow their rental property portfolios. Unlike traditional real estate investing, where you purchase a property and hold it long-term, BRRRR allows you to recycle your initial capital and reinvest it in multiple properties.
In this article, we’ll break down the steps involved in the BRRRR strategy, how to execute it successfully, and the potential risks to manage along the way.
What is the BRRRR Strategy?
BRRRR stands for:
- Buy: Purchase a distressed or undervalued property at a discount.
- Rehab: Renovate the property to increase its market value and rental potential.
- Rent: Lease the property to generate stable cash flow.
- Refinance: Refinance the property to pull out your invested capital.
- Repeat: Use the refinanced cash to purchase more properties, growing your portfolio.
This strategy creates a cycle of capital that allows investors to expand their holdings without needing fresh capital for every new purchase.
Step-by-Step Guide to the BRRRR Strategy
The BRRRR method is a real estate investment strategy. JCREIG Capital Funding explains the 5 steps.
1. Buy
The first step is to find and purchase a distressed or undervalued property. These properties are often sold at a discount because they require significant repairs or updates.
Look for Deals: Use tools like MLS, auction sites, or direct mail campaigns.
Negotiate: Purchase the property well below market value to create instant equity.
Secure Financing: Many investors use hard money loans or private lenders to fund the purchase, as these loans are faster to obtain but typically short-term.
Pro Tip: Aim for properties where the purchase price plus rehab costs are well below the after-repair value (ARV), ideally 70-75%.
2. Rehab
Once the property is purchased, rehab it to increase its market value and rental appeal. Focus on updates that will attract tenants and boost the property’s valuation.
Renovation Examples: Fix structural issues, update kitchens and bathrooms, replace floors, and paint.
Stay Within Budget: Ensure rehab costs align with your financial projections to avoid cutting into profits.
Hire Professionals: Use contractors with experience working on investment properties.
Pro Tip: Plan your rehab with the rental market in mind—invest in features that attract tenants without over-renovating.
3. Rent
After completing the rehab, the next step is to rent out the property to generate cash flow.
Screen Tenants Thoroughly: Choose reliable tenants to minimize risks like late payments or damage.
Set Competitive Rents: Charge rent based on market rates to ensure steady demand and avoid vacancies.
Sign a Lease: Have a legally binding lease agreement to protect both you and the tenant.
Pro Tip: Strong tenant screening ensures your cash flow remains consistent, which is critical when managing multiple properties through BRRRR.
4. Refinance
With a tenant in place, you can now refinance the property based on it’s new, higher value. The goal is to take out a new mortgage to repay the original loan and recover your initial capital.
Use a Cash-Out Refinance: The bank will provide a loan based on the property’s new appraised value, typically up to 75-80% of the ARV.
Pay Off Existing Debt: Use the refinance to pay off the hard money loan or private lender.
Retrieve Your Investment: If done right, you can recover your down payment and rehab costs.
Pro Tip: Make sure the property’s rental income covers the new mortgage payments to ensure positive cash flow.
5. Repeat
Once you’ve refinanced, you now have capital in hand to repeat the process with a new property. This step allows you to grow your portfolio exponentially while maintaining control over your cash flow.
Pro Tip: Build a network of contractors, real estate agents, and lenders to make the process smoother and faster as you scale
JCREIG Capital Funding
Looking to finance your next BRRRR INVESTMENT project?
JCREIG Capital Funding is a hard money lender that can help you fund your BRRRR loan.
We have over a decade of experience, and have funded hundreds of millions of dollars in private money loans for commercial and residential real estate projects across The Sunshine State.
Reach out to us @ 561-303-0334 if you require funding or have any questions.
The BRRRR Method vs. Traditional Real Estate Investing
While similar, the BRRRR method has some key differences compared to traditional real estate investment strategy.
Traditional Real Estate Investing:
Traditional real estate investing typically involves purchasing a property to generate rental income or sell it for a profit.
Here are some characteristics of traditional real estate investing:
- Property Acquisition: Investors identify properties based on various criteria such as location, market trends, cash flow potential, and appreciation prospects. They often rely on their own funds or financing options like mortgages to acquire the property.
- Renovation and Management: The investor may choose to renovate the property to increase its value or make it more appealing to potential tenants or buyers. They then manage the property, handle tenant relations, and address maintenance and repair needs.
- Cash Flow and Appreciation: The primary sources of income in traditional real estate investing are rental payments and property appreciation over time. Investors aim to generate positive cash flow after accounting for expenses such as mortgage payments, property taxes, insurance, and maintenance costs.
- Exit Strategy: Investors may hold the property long term, generating ongoing rental income and benefiting from appreciation. Alternatively, they can sell the property to realize the accumulated equity and potential profits.
Key Differences of BRRRR:
- Risk and Effort: The BRRRR method typically involves more active involvement, including finding distressed properties, managing renovations, and tenant selection. Traditional real estate investing can be less hands-on if investors choose to delegate property management responsibilities.
- Capital Requirements: The BRRRR method often requires less initial capital since a portion can be pulled out through refinancing. Traditional real estate investing may require more upfront capital or access to financing options.
- Cash Flow: The BRRRR method aims to generate positive cash flow by renting out properties. Traditional real estate investing also focuses on cash flow but may prioritize long-term appreciation and potential equity growth. Some may consider this passive income.
Why BRRRR Works So Well
Capital Recycling: Unlike traditional real estate purchases, BRRRR allows you to reuse your capital for multiple investments.
- Equity Growth: Renovating properties increases their value, building equity with each purchase.
- Passive Income: Each rental property contributes to your cash flow, creating a steady income stream.
- Long-Term Wealth: Over time, you’ll accumulate a portfolio of cash-generating properties, building long-term wealth.
Risks and Challenges of the BRRRR Strategy
Underestimating Rehab Costs: Unexpected repairs can inflate your budget and eat into profits.
- Inaccurate ARV Calculations: If your property is appraised for less than expected, your refinance amount may not cover your initial investment.
- Tenant Issues: Vacancies or non-paying tenants can disrupt your cash flow and delay refinancing plans.
- Market Fluctuations: If property values decline, refinancing may become difficult or unfavorable.
- Financing Risks: Lenders may change their lending criteria or reject your refinance application, especially in volatile markets.
Tips for Success with the BRRRR Strategy
- Start Small: Begin with one or two properties to familiarize yourself with the process.
- Build Relationships with Lenders: Work with lenders who understand the BRRRR strategy and offer favorable refinance terms.
- Maintain Cash Reserves: Keep a safety net to handle unexpected expenses or tenant issues.
- Monitor Your Cash Flow: Ensure that rental income covers your new mortgage and generates positive cash flow.
- Stay Organized: As you scale, track each property’s performance to stay on top of your finances and refinancing schedules.
Example of the BRRRR Strategy in Action
Let’s say you find a distressed property for $100,000. You estimate $30,000 in rehab costs and believe the property will be worth $180,000 after repairs (ARV).
- Buy: You purchase the property for $100,000 using a hard money loan.
- Rehab: You spend $30,000 on renovations, bringing total costs to $130,000.
- Rent: You lease the property for $1,800 per month, generating positive cash flow.
- Refinance: The bank appraises the property at $180,000 and offers a 75% loan-to-value refinance ($135,000). You pay off the original loan and pocket the remaining cash.
- Repeat: You now have capital to buy and rehab your next property, starting the cycle again.
Final Thoughts
The BRRRR strategy is an effective way to scale your real estate portfolio by leveraging both capital and equity. While it offers significant rewards, it also requires careful planning, precise budgeting, and market knowledge. With the right approach, BRRRR allows you to grow wealth efficiently while generating passive income from rental properties.
If you’re looking to accelerate your real estate journey, BRRRR might be the perfect strategy to help you achieve your financial goals—one property at a time! Whether it’s your first home or 15th investment property, JCREIG Capital Funding team is here to show you the ropes. Connect with us at JCREIG Capital Funding to supercharge your investment funding efforts and take your business to the next level.
JCREIG Capital Funding
Looking to finance your next INVESTMENT project?
JCREIG Capital Funding is a hard money lender that can help you fund your BRRRR loan.
There’s a method in the madness when it comes to acquiring BRRRR loans. We’re here to help talk you through the steps of the BRRRR real estate method as well as what not to do.
Reach out to us @ 561-303-0334 if you require funding or have any questions.
