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What is BRRRR?
How Can It Help You in Your Investment Strategy? 

What the heck is BRRRR? And, no, we are not referring to “I’m so cold”.

You may have heard this term being thrown around a lot lately.

You will find it to be a popular technique for buying rental properties. 

BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat.

It is a real estate investing strategy that anyone can use to add properties to their rental portfolio – even if you are new to investing! So, what are you waiting for? Read on to learn more about BRRRR and how you can start using it today!

What the heck is BRRRR? And, no, we are not referring to “I’m so cold”.

You may have heard this term being thrown around a lot lately.

You will find it to be a popular technique for buying rental properties. 

BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat.

It is a real estate investing strategy that anyone can use to add properties to their rental portfolio – even if you are new to investing! 

So, what are you waiting for? Read on to learn more about BRRRR and how you can start using it today!

BUY

The first step for you is to find the distressed property that fits your purchase criteria. And second, you need money to buy the property. 

Typically, traditional banks will not lend on a distressed property, and you will need to find alternative financing such as private financing or a hard money lender.

The private or hard money lender will typically loan 100% of the rehab costs (putting this money in escrow). You will need to come up with 25% to 30% for the down payment, closing costs, and enough funds to start the project.

The first step for you is to find the distressed property that fits your purchase criteria. And second, you need money to buy the property. 

Typically, traditional banks will not lend on a distressed property, and you will need to find alternative financing such as private financing or a hard money lender.

The private or hard money lender will typically loan 100% of the rehab costs (putting this money in escrow). You will need to come up with 25% to 30% for the down payment, closing costs, and enough funds to start the project.

REHAB

Now you need to get the renovation underway as quickly as possible. Perhaps you have the time and skills to do the renovation yourself. 

If you are just starting out, however, you may want to hire a contractor to renovate the property for you. 

Keep in mind the budget needed to fix the property and consider the time frame necessary to complete the project. 

You will most likely be making interest-only payments each month. So time will be of the essence, and staying on budget is criterial.

Now you need to get the renovation underway as quickly as possible. Perhaps you have the time and skills to do the renovation yourself.

If you are just starting out, however, you may want to hire a contractor to renovate the property for you.

Keep in mind the budget needed to fix the property and consider the time frame necessary to complete the project.

You will most likely be making interest-only payments each month. So time will be of the essence, and staying on budget is criterial.

RENT

Your next big step will be getting the property rented as quickly as possible. 

If you plan to place the tenant yourself, you must have a compressive screening process. Or consider hiring a placement service. 

You want a good, qualified renter who will ideally stay long-term. The wrong renter can cost you thousands

It is better to leave your unit vacant a little longer until you find the applicant that meets your criteria.

Your next big step will be getting the property rented as quickly as possible.

If you plan to place the tenant yourself, you must have a compressive screening process. Or consider hiring a placement service. 

You want a good, qualified renter who will ideally stay long-term. The wrong renter can cost you thousands.

It is better to leave your unit vacant a little longer until you find the applicant that meets your criteria.

REFINANCE

Congratulations, you have a signed rental agreement, and your renter is in place. Your next step is going to a traditional bank to start the refinance process. Be aware that banks will have a seasoning time before they let you refinance. It could vary from 6 to 12 months. Shop around in advance, so you know the current time frame. 

It is essential to remember that banks typically lend 75% or less of the appraised value. If the appraisal comes in lower than you expected, there may not be enough funds to pay your hard money loan. 

Ideally, you did a great job on the rehab and are getting top rent, meaning you should walk away with extra cash after paying off the hard money lender.

Congratulations, you have a signed rental agreement, and your renter is in place. Your next step is going to a traditional bank to start the refinance process. Be aware that banks will have a seasoning time before they let you refinance. It could vary from 6 to 12 months. Shop around in advance, so you know the current time frame.

It is essential to remember that banks typically lend 75% or less of the appraised value. If the appraisal comes in lower than you expected, there may not be enough funds to pay your hard money loan.

Ideally, you did a great job on the rehab and are getting top rent, meaning you should walk away with extra cash after paying off the hard money lender.

REPEAT

Now you are at the last step of the BRRRR strategy, which means you circle back to the beginning and repeat the process by buying another property. 

The money you hopefully received from the cash out refinance will be available to use as a down payment on your next investment property.

Now you are at the last step of the BRRRR strategy, which means you circle back to the beginning and repeat the process by buying another property. 

The money you hopefully received from the cash out refinance will be available to use as a down payment on your next investment property.


PROS

  • Building a rental portfolio with little out of pocket money

  • Ability to make passive cash flow

  • Build equity during the rehab process

  • Being able to repeat the process

  • Hard money lenders know their numbers and will only loan on good deals

CONS

  • Not being able to get traditional lending

  • The extra cost of hard money (however do not let this scare you)

  • May take you longer than expected to get the ideal renter (a vacant unit is better than the wrong renter)

  • Time delay in refinance due to banks seasoning time frames

  • Possibility of going over budget on rehab costs

PROS

  • Building a rental portfolio with little out of pocket money

  • Ability to make passive cash flow

  • Build equity during the rehab process

  • Being able to repeat the process

  • Hard money lenders know their numbers and will only loan on good deals

CONS

  • Not being able to get traditional lending

  • The extra cost of hard money (however do not let this scare you)

  • May take you longer than expected to get the ideal renter (a vacant unit is better than the wrong renter)

  • Time delay in refinance due to banks seasoning time frames

  • Possibility of going over budget on rehab costs

Keep Moving Forward⏩
I Believe In You!💫

“Experience tells you what to do; confidence allows you to do it.”


~Stan Smith


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Mary Jo Whelan is a leader in the field of residential property rentals. She owns and runs a property management and renovation company in Baltimore.

Mary Jo started with no money, college education, or job. From these humble beginnings, she has grown her company to manage over 100 rental properties and manage over 50 rental renovations ayear.

She co-facilities a monthly landlording strategy meeting for a local REI group and is the past president of NAPRM, National Association of Residential Property Managers.

Mary Jo is also the founder of Lucrative Landlording for Women, an exclusive community for success-driven women landlords. Lucrative Landlording provides an elite coaching program, masterclasses, and networking events designed to help women landlords maximize their cash flow and keep high-quality renters.

Mary Jo is passionate about helping women landlords succeed in the field of landlording, secure their financial future, and create generational wealth.

In her spare time, she enjoys practicing techniques for furniture painting, gardening, and traveling. And yes, just for fun, she actually jumped out of a perfectly good plane.


The content presented in this blog is provided for entertainment and educational purposes only and does not constitute legal or other professional advice on any subject matter. Lucrative Landlording provides information it believes to be accurate, however, Lucrative Landlording makes no representations or warranties about the accuracy or completeness of the information contained on this blog.


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