When you first get started in real estate investing, you’ll learn many different methods to create passive income. One method is the BRRRR Method, which stands for Buy, Rehab, Rent, Refinance, and Repeat. This method is a great way to quickly build up your real estate portfolio.
Let’s look deeper into what each of these words mean as it relates to the BRRRR Method and how you can utilize it.
Buy
The first step is to purchase a distressed or off-market property that needs minor repairs that won’t take much time or money. Typically, investors choose these properties because the listing price is much lower than the market price, making it a great value.
Before purchasing the property, you’ll want to make sure the BRRRR Method will work. To do this, do the math to make sure the purchase price and the cost of repairs don’t exceed 70% of the after repair value.
Rehab
Rehab essentially means making any repairs to the property. Most of the time, the properties used in the BRRRR Method are distressed, meaning they may need a little more cosmetic work and some mechanical repairs before they’re ready to be rented out. Just make sure only to complete necessary repairs so you can get the most out of the property.
Rent
Once the repairs are completed, it’s time to rent it out to a qualified renter. Select a renter you trust will take care of the property; this is crucial for your future refinancing. The money you receive from renting out the property will help you make the monthly mortgage payments, which will increase your equity.
Refinance
Once your project is completed and your renter is secured, talk to your bank about your accrued equity and do a cash-out refinance. A cash-out refinance will allow you to convert your equity into cash, which can be used to purchase another property. Sometimes banks will require you to have owned the property for 6-12 months, so keep that in mind.
Repeat
The final “R” is repeat, so repeat the process by utilizing the cash from the cash-out refinance to start back at the beginning, purchase another property, and complete the process again. Make sure to look at your first project and see what you did well and what you could improve on next time.
The BRRRR Method is a great strategy to create passive income and build your portfolio. If you have any questions about the BRRRR Method, reach out to us! We would love to help!
