Guide to BRRRR Method for Real Estate | BaselaneUltimate Guide to BRRRR Method for Real Estate Investment | Baselane (2024)

• BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat, a strategy for building a real estate portfolio and generating passive income.
• Find undervalued properties over time, rehab them, rent them out, refinance to recover costs, and repeat.
• Use the 1% rule for setting rent: at least 1% of the total property investment per month.
• You need to buy properties with revenue potential, make strategic repairs, find reliable tenants, and build equity for refinancing.
• Suitable for real estate investors aiming for long-term cash-flow assets.
• Pros: Lower initial investment, potential for high ROI, passive income, and continuous equity.
• Cons: Requires upfront capital, good credit, carries financial risks, and repairs delay returns.

At the start of the BRRRR method, you hunt down an affordable property that’s a diamond in the rough. A distressed property is an industry term for a home or building that needs a bit of work and has good potential to generate positive cash flow in the future.

After buying the property at a favorable price, the next steps involve rehabilitation and renting it out. The rent should ideally cover the mortgage payment and other expenses. Refinancing becomes a strategic move once the property’s value is uplifted through rehab. Using a cash-out refinance, you can pull out the bulk of your original investment to buy your next property while earning income from the first.

The 1% rule in BRRRR investing is a quick method to determine how much rent to charge as a landlord. If you follow the 1% rule, the rent you charge your potential tenants should equal at least 1% of what you paid for the house, including renovation costs, repairs, and other improvements.

For example, if your total investment in a BRRRR real estate property is $100,000, you should charge at least $1,000 monthly rent.

The first step in the BRRRR method is to find and buy your investment property. This isn’t about just buying any property but finding one that offers good value and potential for significant equity after repairs. Key considerations include:

• Ensuring the property is a good deal for your potential returns.
• Estimating the After Repair Value (ARV) before making an offer.
• Making sure the total cost of repairs plus property purchase expenses don’t exceed 70% of the ARV.

This stage demands a pragmatic approach, focusing on what you can afford without emotional attachment, as it’s an investment, not a personal home.

To find more profitable leads, start driving for dollars. To scale your business, learn how to recruit drivers so you have a team of people that generates a list of unique properties other investors don’t have.

Rehabilitation, the first ‘R’ in BRRRR, involves more than just cosmetic changes. It requires:

• A keen eye for detail and a skilled team.
• Focusing on improvements that increase property and rental values.
• Considering future repairs, like replacing a roof or siding.
• Sticking to your budget while making strategic upgrades.

The second ‘R’ stands for renting out the rehabilitated property. This step involves:

• Choosing a reliable tenant with a stable financial and rental history.
• Ensuring the lease agreement is comprehensive for future refinancing needs.
• Factoring in the cost of hiring a property manager if needed.

Refinancing, the third ‘R’, which involves:

• Talking to banks about how to recapture as much equity as possible.
• Providing updated appraisals, tenant lease copies, and personal financial details.
• Understanding the seasoning period of your mortgage before refinancing.

The final step is to repeat the process:

• Reviewing your previous project to identify areas of improvement.
• Applying learned lessons to streamline the process for future properties.
• Focusing on systems and repairs that enhance both rental and property values.

Using the BRRRR method, you can systematically grow your rental property portfolios, ensuring each step contributes to the overall success of your real estate investment strategy.

• Lower Initial Investment: Start investing with a smaller down payment.
• Passive Income: Gradually build a portfolio that generates passive income streams.
• Cash Growth: Quickly build equity and cash in markets with rising home values.
• Continuous Equity: Increase equity during rehab while other properties appreciate.

• • Initial Resources: Requires some capital for a down payment and rehab costs.
  • Credit Requirements: Good to excellent credit score is necessary for a real estate loan.
  • Financial Risks: Potential losses from market downturns and unexpected repairs.
  Delayed Returns: Repairs and renters are needed before properties make money.

To help you better understand how it all works, here’s a BRRRR method example focused on the Tampa, Florida real estate market and the potential return on investment (ROI) you can earn. We used our rental property ROI calculator for this example. Be sure to check out the BRRRR calculator as a resource when doing your calculations.

Consider this Tampa home listed for $260,000. If you buy the home for $230,000 and spend $20,000 on the rehab process and renovations, your all-in cost would be $250,000. We will use that as our “purchase price,” as it’s your total investment to get started with the property.

The calculator gives us the information below:

Based on common assumptions, this property would offer a cap rate of over 10%, a cash-on-cash return of almost 25%, and an annual cash flow of $14,210. That assumes you can get $2,500 per month in rent, which would be charged at a minimum using the 1% rule.

Your return is at risk if costs go up or rent goes down. If you can beat estimates on costs or charge more for rent, you can do even better.

The BRRRR method is a buzzword in online real estate forums for a good reason. With this real estate investing strategy, you can follow a proven, math-based approach to finding properties and turning them into a source of income without tying up your initial investment forever. That’s a big benefit over the stock market and similar investments, though you’re taking on more risk when buying your own properties as a landlord.

When you do it right, you can become a stealth millionaire with a successful property management business. Whether you want to do that as a side hustle, full-time career, or to build an income for early retirement, BRRRR real estate could be perfect for you.