Real estate investing can be a lucrative way to build wealth, but it can also seem daunting for first-time buyers. That's where the BRRRR method comes in - a real estate investment strategy that can help newcomers get started in the industry.
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. Essentially, the method involves purchasing a distressed property, rehabilitating it, renting it out to tenants, refinancing the property to recover your initial investment and to derive consistent cash flow, and repeating the process with another property.
Here's a closer look at each step in the BRRRR method:
Buy: The first step is to find a distressed property that is priced well below market value. This could be a foreclosure, a property that needs significant repairs, or a home that has been on the market for a long time.
Rehab: Once you've purchased the property, it's time to rehabilitate it. This could mean making minor repairs or a complete renovation, depending on the condition of the property. The goal is to make the property livable and attractive to potential tenants.
Rent: With the property fixed up and ready to go, it's time to find tenants. You can do this on your own or with the help of a property management company. The goal is to find reliable, long-term tenants who will pay rent on time and take care of the property.
Refinance: After the property is rented out and generating income, it's time to refinance the property to recover your initial investment. Ideally, you'll be able to refinance the property for more than you put into it, allowing you to extract some of your equity.
Repeat: Finally, you can use the proceeds from the refinancing to purchase another property and start the process over again. With each iteration of the BRRRR method, you'll be building your real estate portfolio and generating passive income.
One of the biggest advantages of the BRRRR method is that it allows first-time buyers to get started in real estate investing with relatively little money down. By purchasing a distressed property and fixing it up, you can increase the value of the property and generate rental income, all without having to make a large upfront investment.
Additionally, the BRRRR method allows you to leverage your investment. By refinancing the property, you can extract some of your equity and use it to purchase another property. This means that you can continue to build your real estate portfolio without having to put in as much money upfront.
On a personal note, when I first moved to Miami, I lived in a large studio with no balcony and no dishwasher. Believe it or not, I was there for over 4 years and meanwhile, I was selling ultra luxury homes on Fisher Island and the Venetian Islands. It honestly felt a bit strange knowing how fulfilling and financially sound owning a home was while not owning one myself.
During the pandemic I moved to a high-floor one bedroom condo with a dishwasher and balcony! I rented it for a year and when my landlord gave me the option to either renew at a 30% increase or buy the property, it was the small nudge I needed.
Since then, my monthly costs have been been fixed, I've been able to make improvements, and I've built equity I otherwise wouldn't have. I will eventually keep this as an investment property when I move because if I were to rent the property today, I would benefit from a 60% profit on the monthly costs producing a 12% - 15% cash on cash return. To buy the next property I will do a cash-out refinance and repeat the process.
This is the BRRRR method, and it works.