This preferred strategy helps establish passive income while minimizing the natural risks of real estate investing.
To have a successful real estate investment strategy, you need to take the best tactics from other key methods. The BRRRR method of real estate investment does just that. It combines the benefits of flipping together with the fast turnaround of rental markets. BRRRR stands for, “Buy, Rehab, Rent, Refinance, Repeat.” This method allows investors to build substantial passive income over time, with lower risk when compared to flipping or rentals alone. However, it is important that you understand the markets of the area you are looking, or purchase through a real estate development company who has already done the research for you.
The first letter in the BRRRR method, it is the most critical step in the entire strategy. As any real estate investor knows, you make your money when you purchase your home. The initial purchasing price will more often than not determine the future outcome of your investment. If you are using an experienced real estate development company, they will have done a detailed deal analysis that will determine costs of purchase, renovations and anticipated rental income. If there is still enough of an anticipated profit margin after a proper analysis, a sale will move forward.
The ultimate goal of the renovation is to attract a quality tenant. Quality construction can add considerable value to a home, increasing potential rental rates. However, it is a balance. Investors need to hire contractors that they trust to keep renovations on budget, and recommend changes that will bring value. Otherwise, you may end up with such a small return on investment, that it makes the entire deal not worth your time. The best way to hire a dependable contractor is through a real estate development company that is assisting you in the deal.
Once renovations are complete, the search for a quality tenant can begin. Investors will often screen tenants, or hand off the management of tenant turnover to a property management company. Once the property is rented, the investor may need to manage vacancies, respond to maintenance calls, and ensure the rental income is staying above monthly expenses. The rental risk of the BRRRR method is far lower than traditional rental properties. Repairs are less-frequent due to recent renovations, and quality properties tend to attract responsible tenants.
After the property has been rented, you can begin the process in refinancing the property to obtain a long-term mortgage with a lower interest rate. Depending on the lender, there may be a ‘seasoning period’ that indicates how soon you will be able to refinance the property. Some lenders do require an ownership period of six-months to a year before it can be re-appraised for an updated value.
Once an investor has secured a cash out refinance from the first property, they can use that capital to move to a second. Then the whole process repeats again, until the investor decides to stop. While there is a bit of a learning curve when utilizing the BRRRR strategy, it can be helpful to use the knowledge and experience of a real estate development company to guide you. Companies like Turnkey Property Pro helps take the work out of BRRRR by setting an investor up with all the support they need to effortlessly create a passive income network.
Why Choose BRRRR?
While any investment strategy isn’t without risk, the BRRRR method helps to mitigate the most common risk of real estate investment. The biggest risks when it comes to rental properties is the risk of a low appraisal, the inability to refinance, and having bad tenants or high vacancy rates.
Performing your own due diligence is time consuming and difficult. However, by utilizing a property development team, like Turnkey Property Pro, you merely choose from a set group of properties and lenders that have already been researched, analyzed, and vetted. Further, the property is completely managed, so there is no need to worry about tenant screening or maintenance concerns.
By combining the experience of a development and management team along with BRRRR, it is by far the best strategy for a long-term flow of passive income.
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