What the heck is a BRRRR anyway? Yes, it could mean you are chilly, but for real estate investors, it has a whole other meaning. The basic idea of the BRRRR method is that you buy a property, make improvements, and then refinance the property after you increase its value. BRRR stands for BUY / RENOVATE / RENT / REFINANCE. If you love real estate investing, and you want to own several properties, you can tack on an extra R for REPEAT. This investment strategy might seem complicated if you’re not familiar with it, but it is a very straightforward concept that allows you to continue to purchase more properties to add to your portfolio. Let’s take a quick look at each of the steps.
BUY – First, you buy an undervalued property and renovate it, just as you would with a fix-and-flip. The goal is to improve the condition and ultimately increase the value so that you have built-in equity when you refinance. When you purchase the property, you will typically take out a private short-term mortgage and then go to the bank later to refinance at much cheaper rates.
RENOVATE – In this step, you need to closely evaluate the renovations needed to give the best potential upgrade to increase the overall value and/or rental rate. For example, a simple 3-bedroom single-family home may benefit more from a basic new bathroom and kitchen, rather than expensive new floors and granite countertops.
*It is critical to keep your intended rental market in mind when planning renovations.
RENT – Know your market of renters. Who will live here? Is the home for a family or intended for students, or Airbnb, etc? Vet tenants thoroughly and charge enough to immediately generate positive cash flow.
REFINANCE – This step can be altered depending on changes with the market and/or the investor’s ability to get the refinance. If you cannot qualify for the refinance at this time, you can sell the property for a profit. You can also consider bringing on a joint venture partner, getting them to qualify for the new bank mortgage. If this is the case, any profits made with the refinance are now in your wallet, and on to the next project!
*It is very important to know and understand the various exit strategy options.
- Refinance
- JV partner to qualify for the refinance
- Sell instead of renting
The last R is REPEAT – Use the cash from your last project and start the BRRRR process all over again!
CONCLUSION – BRRRR and variations of it can be an excellent strategy for building wealth through real estate. And as for financing these projects, we can help at PRIVATE MONEY 4 MORTGAGES. We have great lending programs specifically designed to help investors doing “flips” and “brrrr” strategies.
We help borrowers & professionals with Private Mortgages all across Ontario!
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