Turnkey Property Investment: What are the Disadvantages and Advantages of the BRRRR Strategy?
Before you can take advantage of the BRRRR method as a real estate investor, you must know what the BRRRR strategy is. BRRRR is an acronym for:
This technique is a widely used as a formula for consistent revenue generation, and many new investors view it as a surefire way to make long-term money. However, while it certainly can allow real estate investors to deliver excellent returns, it’s important to understand some of the issues that new investors sometimes experience:
- Rehabilitation timeline problems. This is a particular problem for new investors who don’t have experience spotting potential rehab tripwires in investment properties, and who don’t know, or don’t have the resources to find the best contractors. While certain conditions will only reveal themselves in the middle of the renovation, some contractors could be the root of the problem. Standard financing could help mitigate the risk of rehab delays, but if your repayment schedule is high interest, you might be doomed.
- Cost overrun. Failure to keep a close eye on everything being spent could lead to mounting costs. Make a budget for unforeseen expenses and don’t allow anyone who’s authorized to make purchases exceed your set amounts.
- Poor appraisals. When your post-rehab appraisal came in lower than your initial estimated value, you could be unable to refinance, and paying back the lender could be a struggle. Worst case scenario: You owe more than what the property is worth.
- Long vacancy. Failure to rent your property quickly is the most common and potentially devastating problems with rental property investment. An unoccupied rental property will cause you to hemorrhage money.
However, the BRRRR strategy certainly isn’t all doom and gloom, and when investors make it work for them, it can help them build significant wealth. If you pursue your plan wisely, you could reap the following benefits.
What could be better? Using the BRRRR strategy means that it is possible to make an initial zero investment, because you use revenue from previous investment properties to fund subsequent ones.
You don’t have to be a billionaire to start your real estate investment venture with BRRRR – you can begin very modestly with a single or double occupancy property and gradually increase your portfolio both in the number of properties and value.
No one should ever enter any investment scheme with the impression that it’s a guaranteed winner; due diligence must be performed and care must be taken to ensure preventable problems don’t derail the project. However, the BRRRR strategy is a fairly simple concept to follow for people with all levels of experience. Although it’s always possible for something to go wrong in any endeavor, the BRRRR strategy does work time and again in a variety of economic conditions and markets.
Yes, it is possible to reap financial rewards when you execute the BRRRR strategy, but it is also personally fulfilling to renovate a neglected property, provide a well-maintained home for a renter, and watch the money roll in when it all goes according to plan!