An Intro to BRRRR Real Estate Investing [Fixer Upper Rentals!]
You know what I really like about ligers? Picks the best traits of lions and the best traits of tigers and combines them into one beast and you know something else that combines the best of two things into something totally new and totally cool? BRRRR real estate investing. You know it’s the perfect cross between house flipping and rental property investing it takes the benefit of both and make something incredibly powerful that could help you build millions of dollars in net worth plus significant monthly cash flow in shorter time than you ever thought possible. Well my name is Brandon Turner co-host of the BiggerPockets Podcast and author of the Book on Rental Property Investing and today I want to give you a brief overview of how to invest in fixer-upper rental properties using this BRRRR strategy. Hang tight… So BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. It’s basically the strategy where you find a nasty property and then you buy using short-term funds, fix it up pretty nice, put a great tenant in there paying top dollar, refinance it to get a nice long-term mortgage, and then repeat the process over and over.
Now, if you’re confused don’t be. I’m going to give you a real life scenario right now on a recent BRRRR deal that I did. Now, this is the Cedar House, so i bought it for seventy thousand dollars then I used a private money lender – somebody I met on Bigger Pockets while networking – to fund the deal and to fund most of the rehab. Now including holding costs and other expenses we spent about thirty five thousand dollars fixing up the property and man was it nice. The house rented in no time to a great tenant who paid on time every month and was super easy to work with.
Then we went to work refinancing. Now, typically a bank is going to want you to wait at least six months after getting to purchase before they’ll give you the loan and sometimes they want an entire year, just be sure on that when your calculate your numbers when you’re doing a BRRRR analysis. So after the time the house appraised for close to 150,000 and I was able to get a brand new loan to pay off the short-term lender with a long-term mortgage and drop my payment by one hundred dollars a month. Now at the end of the day I kept only a few thousand dollars of my own cash in the deal and going forward with cash flowing every month. Now, besides that story why is BRRRR so cool? Like I said it’s kind of a hybrid between flipping and renting – it takes the benefits of both and reduces the risks of both, so I can build an instant equity in my property which adds to my net worth, but I can wait until the market is where I want it to be at the peak to sell.
I can also get monthly cash flow from a great tenant because great houses attract great tenants. Furthermore, my repairs and Cap Ex are reduced because the house is rehabbed already. Plus, as a BRRRR property I can take advantage of long-term capital gains tax which means I pay less taxes than a flipper might. And finally… BRRRR investing allows me to buy real estate without using much of my own money, so I use a private lender to fund the deal and hopefully the repairs and I use a long-term mortgage to pay off that private lender. Now I’ve done numerous BRRRR deals in my life where I didn’t even put a single penny of my own cash into the deal. Finally, BRRRR can be used with single-family houses, small multi-family, large multi-family, and even commercial properties. But, of course, BRRRR investing isn’t without some risks. So what if you can’t get the refinance or what if the appraisal amount doesn’t come in high enough? Typically a bank wants to you know they don’t already finance the whole thing nearly seventy percent or what if you do the numbers wrong? As with any investment there are risks.
However, here’s what I love about BRRRR. You can minimize the risks by doing your homework. Now have I spoken to a local bank to make sure I can qualify for a refinance? Have I determined what the after repair value is by looking at recent sales comps other properties that have sold? And have I run the numbers properly to ensure that I’m going to have enough equity to get the loan and that all the numbers are going to work out right. Now in doing your homework you can minimize your chances of something going wrong with the refinance and furthermore I love the fact that if I couldn’t get the refinance I could just sell the house and likely still make a profit and speaking of doing the math be sure to check out the BiggerPockets BRRRR calculator. You can run the numbers on your next BRRRR deal in under five minutes and estimate your cash flow, equity, ROI and much more – plus the downloadable PDF reports are perfect for presenting your deals confidently to private lenders, banks, partners, your spouse and it’s just amazing.
So check it out on BiggerPockets.com/analysis if you’ve not yet used them. Now if you want to learn more about the BRRRR strategy I want to invite you to a free online class that I’ll be hosting this week here on BiggerPockets. We’ll be discussing the BRRRR strategy in minute detail to help you prepare to do your next or maybe your first BRRRR investment. Just head to BiggerPockets.com/BRRRRwebinar BRRRR with four r’s. And sign up. So I wish you the best of luck on your future BRRRR deals and as always stick close to BiggerPockets and your journey towards becoming a real estate mogul.
The BiggerPockets forums are free to post questions any time and we’re putting out new videos every week on the Bigger Pockets YouTube page so be sure to subscribe to our channel there. Now for BiggerPockets.com my name is Brandon… Signing off..
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