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The BRRRR method of real estate investing offers investors the opportunity to build a portfolio of assets and generate passive income by investing in distressed properties with little to no money down.
What is the BRRRR method?
At the highest level, the BRRRR method is about building a rental portfolio over a long period of time.
Typically, real estate investors will start with limited capital — only enough to buy one distressed home, far below market value, with one mortgage.
Once they purchase the home, they rehab the property, fix it, and rent it out. After the investor has secured a rental tenant, they refinance the home, take cash out, and repeat the process.
The BRRRR method contains five steps:
Step #1. Buy
A real estate investor acquires a distressed property under fair market value.
Step #2. Rehab
To improve the home and prepare it to generate returns, the investor fixes up the distressed property by conducting renovations.
Step #3. Rent
To generate passive income, the real estate investor finds tenants to rent the property.
Step #4. Refinance
The real estate investor refinances the home at the newly assessed value to take out the equity used to buy the property.
Step #5. Repeat
The real estate investor repeats the same process with a new property, creating a rinse-and-repeat strategy to grow an investment portfolio.
The process of buy-rehab-rent-refinance-repeat allows real estate investors to acquire new investment properties without purchasing them at market price.
Now that we've covered what each step of a typical BRRRR investment approach looks like at a high level, let's take a look at a few key takeaways to note when evaluating if BRRRR is right for you:
Real estate market activity impacts BRRRR investing strategies
The BRRRR method can be incredibly successful when the market is up because, in an up-market, you're much more likely to recoup your initial investment.
If you're in a down-market, you may get stuck only being able to do your next deal if you can access another source of external cash.
A BRRRR strategy can enable investors to build equity over time
The whole point of BRRRR is about building your equity upfront so that you can refinance, get all your cash back, and use your cash to fund your next real estate purchase.
The BRRRR method allows investors to build an ongoing system to support their investment interests.
Because of the low-money-down benefit and relatively quick ROI yield, the BRRRR real estate investment strategy is popular amongst new and young investors. However, all investors can benefit from the BRRRR method when properly executed.
Now that we've taken a look at some of the most important high-level things to know about BRRRR investing, let's dive in.
Why we're writing this
To optimize the BRRRR real estate investment strategy, you must know the different tactics and channels you can leverage to execute BRRRR successfully.
PropertyRadar has helped hundreds of BRRRR investors with our industry-leading access to public record data. Using PropertyRadar, investors can strategically identify properties matching their investment criteria and leverage a best-in-class marketing suite to connect with them.
We've helped seasoned BRRRR investors and BRRRR beginners educate themselves on the market and intelligently invest for years. We want to help you do the same.
In this Complete Guide to BRRRR method real estate investing, we'll be covering:
- The Big Picture: 3 Things to Consider About BRRRR Method Investing
- A Closer Look At the 5 Steps of BRRRR
- Building a Scalable BRRRR Investment Strategy
The Big Picture: 3 Things to Consider About BRRRR Method Investing
The whole point of BRRRR investing is being able to do it over and over and over again.
The primary value-add of BRRRR is that, in theory, it allows a real estate investor to grow an entire rental property portfolio from the momentum of a single transaction.
You can fund the next by leveraging the equity extracted from the first BRRRR property.
Repeating this process should eventually allow you to create an investment portfolio containing many rental properties, all acting as passive income sources for you.
You're either using the same pool of capital several times or the cash you could pull from your initial refinance. At the end of the day, you refinance the BRRRR loan and can move on to the next deal with the previous property being alright.
As a result, there are three key considerations that BRRRR real estate investors need to keep in mind:
#1. Consider which distressed property to purchase
The BRRRR method of investing aims to access the capital that went into your property's original purchase and renovation process while having equity that you can rent, refinance, and repeat the process.
Whether it was your money, hard money, or the seller's money, BRRRR focuses on recouping the cash put into one deal and using it to fuel another acquisition.
With BRRRR, you're taking the money back out and putting it into a long-term, good-quality loan.
Since you have rental tenants providing you with a stream of passive monthly income, there is enough capital to cover your loan repayment responsibilities and the maintenance and upkeep expenses of that property.
Because of the property's role in building the financial power to fuel more deals, it's essential that BRRRR method investors are purchasing distressed properties with strong ROI potentials.
If you get cash flow negative on a bunch of these, you can only do this repeatedly for a short time. The inability to repeat the process brought on by a negative cash flow disrupts the flow of your BRRRR strategy and creates financial issues that limit your ability to continue building your rental property portfolio.
#2. Consider how you want to build your rental portfolio
When creating your BRRRR investing strategy, there are a few different methods, but we recommend a stable, systematic approach.
A more stable overarching goal should be to complete one or two of these transactions per year over the next ten years. This target will allow you to have 20 or 30 properties in your rental portfolio after a decade.
If you're young and are just starting, the BRRRR method for beginners allows you to set a personal investment goal. For example, you may pledge to have 20 properties in your rental portfolio or 50 properties in your rental portfolio by the time you reach 50 years old.
The core of BRRRR investing is about achieving long-term goals. You may have limited capital, but by following a calculated process of buy-rehab-rent-refinance-repeat, you can build a rental portfolio to generate long-term wealth.
If you can purchase properties that cash flow breakeven and repeat that process over time, you're likely able to build incredible wealth over twenty years efficiently.
#3. Consider external market conditions
Our team at PropertyRadar recommends thoroughly evaluating market conditions before investing in a BRRRR method strategy to ensure that you are in a flat or buoyant market.
You must time your purchases correctly to avoid hitting a wall that prevents you from moving on to the next stage of the five-step BRRRR process.
To conduct BRRRR properly, you need to be able to move through each consecutive step in the proper order.
Since the housing market conditions can affect your ability to complete one stage and move on to the next, you must pay close attention to the rhythms of the real estate market.
Market evaluation allows you to be confident you have the right investment strategy.
A Closer Look at the 5 Steps of BRRRR
Let's walk through each of the phases of BRRRR to help real estate investors learn best practices and strategic tactics to succeed in BRRRR rental property investment.
Step #1: Buy
The most popular type of property BRRRR investors purchase is a distressed property.
A distressed property is a home experiencing either physical or financial issues because the current owner can no longer maintain the property.
The owner has become unable to meet the financial obligations required to keep up the property's mortgage, the property itself, or both.
Typically, distressed homes are edging towards the foreclosure process — if they are not already in foreclosure due to the owner being unable to pay the mortgage or being subject to tax liens.
Owners in this type of financial hardship are usually unable to maintain their properties and land plots.
Because of this, distressed properties generally showcase physical signs of disrepair, especially if the property is not serving as their primary residence.
Since owners often need to sell these properties quickly or are even forced to sell them, investors can usually acquire them for below market value.
Step #2: Rehab
After purchasing a distressed property, the next step is to rehab the home to get it ready to begin serving as an income-generating rental investment.
Depending on the state of the property, different renovations may be necessary. The two significant types of rehab are interior and exterior.
Interior renovations include:
- Replacing the floors.
- Installing new countertops and cabinets.
- Conducting bathroom remodels.
- Painting a fresh coat on all interior walls.
Exterior renovations include:
- Repairing or replacing the roofing.
- Cleaning up the landscaping.
- Conducting siding repairs.
- Addressing any necessary window repairs.
Remember, you can incur additional rehab costs unexpectedly once renovations are underway, so be sure to plan accordingly.
Step #3: Rent
Once renovated, you can list the property for rent and market it to potential tenants to generate rental income.
Start by generating awareness for the property by promoting your listing on Craigslist, FB marketplace, Classifieds, and spreading the word.
Conduct necessary due diligence by screening applicants to ensure that you choose a trustworthy tenant that reliably provides rental income and takes good care of your investment property.
Once leased to a tenant, ensure timely rent collection by sending out email and text reminders or making phone calls.
Steady rental income is a key to successfully executing the BRRRR method. Not only can it provide passive income - it ensures you're able to cover your mortgage payment or other financial commitments.
Step #4: Refinance
Refinancing your property allows you to extract the new value of the home post-renovations and improvements.
Let's take a look at the 4 most popular ways to refinance your home:
Refinance Option #1: Paying cash
If you have the cash available, you can pursue a cash-in refinance that enables you to have your lender refinance your loan after you've made a lump-sum payment.
Refinance Option #2: Using a lender and starting with little to no money down
Working with a hard money lender allows you to move faster and function more like cash, opening up an excellent avenue for reaping the rewards of your initial purchase.
Refinance Option #3: Traditional financing
Another way to refinance is to opt for traditional financing, where you take out a mortgage loan from a conventional lender.
Refinance Option #4: Seller financing
Seller financing is the process by which a seller helps the buyer finance the purchase of the property they are selling. In some cases, the seller finances the entire transaction.
The main benefit here is that you do not require a traditional mortgage loan to purchase real estate.
Step #5: Repeat
There are several ways to find distressed properties and, eventually, finance your BRRRR method investments.
Once you complete a cash-out refinance, you can use that cash to finance a new down payment on another property and start building a portfolio with multiple rental properties.
By repeating the process, you will move on to your next deal and follow steps one through five — until you eventually have built an impressive rental portfolio.
Now that we've covered what BRRRR is, let's move on to actionable strategies to help you succeed in the BRRRR method investment.
Building a Scalable BRRRR Investment Strategy
As we've discussed before, the whole point of BRRRR is being able to do it repeatedly.
With scalability being so important to growing your BRRRR investment portfolio, we're going to take a look at:
- 6 Methods for Locating Promising Investment Opportunities
- Tips for Determining Which Tactic and Channels Are Right For You
- Steps You Can Take To Begin Leveraging the BRRRR Investing Strategy
6 Methods For Finding Investment Properties
Method #1: Driving For Dollars to locate distressed properties
Driving For Dollars involves driving around your neighborhood and looking for houses in disrepair.
By identifying these homes through in-person investigation, you can get the upper hand over your competing investors. Oftentimes, they'll rely on digital-only resources, which may only reflect some of the opportunities in the market.
When Driving For Dollars, keep track of the streets you've been down and create a list of properties you'd like to follow up on with more research.
Signs of a distressed property include overflowing mailboxes, code enforcement signage, unkempt landscaping, broken windows, and dilapidation.
To enhance your Driving For Dollars strategy, ask people in your network to keep their eyes out for potentially distressed properties.
While they may not go out with the sole purpose of identifying properties for you, it can be helpful to have people report to you in case they see a potential real estate opportunity.
Having more eyes on the lookout can maximize the reach of your Driving For Dollars gameplan.
Method #2: Attending local auctions
Local auctions are another option for finding distressed properties.
Real estate auctions are where lenders attempt to sell distressed properties to the highest bidder.
If you can identify off-market distressed properties, you can make a compelling offer to distressed homeowners by providing a solution that assists them before their home goes to auction.
If you are attending auctions hoping to purchase a distressed property on the spot, keep in mind that auctions typically favor all-cash offers.
Auctions may work for experienced BRRRR investors who have the capital on hand from refinancing their previously purchased asset or BRRRR investors who have secured capital from another source.
On the other hand, local auction houses are not the best solution for a first-time BRRRR beginner looking to purchase the first asset with little to no money down.
Method #3. Researching court records
Often, properties fall into distress due to life events that impact the homeowner — such as divorce, loss of employment, or lawsuits.
Since many situations involve courtroom proceedings, you can identify distressed properties by searching through court records.
Court records can also come in handy as you're conducting due diligence on potentially distressed properties you've identified by driving for dollars.
When you're ready to find out if the homeowners have delinquent mortgage payments, you can find this information in county court records.
As you might suspect, delinquent mortgage payments are the primary indicator that a property is distressed and on the way to foreclosure.
Method #4. Leveraging county tax records
Another option is to search county tax records to find distressed properties that fit your specific criteria.
Delinquent tax records suggest that the homeowner may be financially underwater.
BRRRR investors need to remember the value they can offer a homeowner struggling with a distressed property.
In many cases, these individuals are experiencing severe financial hardship.
They may feel like they have no options and are at a loss.
As a real estate investor looking to acquire a new asset, you have the chance to lend a helping hand that can enable struggling homeowners to rewrite their stories.
Your expertise and access to capital can become a vital lifeline to a distressed property owner. Meanwhile, you achieve your goals of accessing a distressed property to purchase — kicking off your BRRRR method investment strategy.
Method #5: Reviewing news outlets and local obituaries
Another avenue to find distressed properties for BRRRR investing is to watch the news and keep an eye on the local obituaries.
While it may seem a little strange — or even a little macabre — to formulate your lead generation strategy around estate sales, it's a common practice amongst real estate investors that often generates surprising levels of success.
Method #6: Identifying Code Enforcement
Homeowners who are underwater typically cannot keep up with the financial burdens of maintaining their property.
These properties are often subject to code violations. Therefore, searching for properties with code enforcement issues will likely lead you to the distressed property leads to fuel your BRRRR investment.
These violations can be minor or severe enough to result in building condemnation. In these cases, the homeowner of the distressed property may be desperate to overcome their situation — if the home is bulldozed due to code enforcement violations, they face a total loss.
Homeowners in this situation are often in dire need of a solution, which would make them motivated sellers who are more likely willing to accept your offer.
How To Determine Which Strategy Is Right For You
To help you identify which BRRRR tactics, tools, and channels are best for you, here are three questions to ask yourself as you set up your long-term BRRRR strategy.
Question #1: What is my overall goal for my BRRRR method investment strategy?
BRRRR beginners should start planning their investment strategy by identifying the "north star" of the plan. What is your overall goal for BRRRR investing? What do you want to achieve or gain?
You may want to purchase one property yearly to build a rental portfolio over time. On the other hand, you may want to build a real estate portfolio containing multiple types of assets, from residential duplexes to condos or commercial real estate properties.
For some, these goals may be more defined. Consider your motivations and long-term goals to identify your overarching goal for BRRRR. They'll help guide your strategy and empower you to attain your specific goals.
Question #2. What kind of distressed properties do I want to seek out?
Real estate investors need to determine the types of properties they'd like to acquire to create their BRRRR investment portfolio.
Ask yourself what properties you'd like to acquire, which may be a multifamily asset, a traditional single-family home, or a commercial property.
It's possible to combine property types under your real estate portfolio, but you should begin with a general idea to guide your approach to BRRRR.
Question #3. What kind of financing is right for me?
Depending on your circumstances, you should determine which method you'd like to leverage to finance your BRRRR real estate investment purchases.
As discussed in Part One of this deep dive into BRRRR, the five main financing methods are:
- Paying Cash
- Hard Money
- Soft Money
- Traditional Lending
- Seller Financing
What’s Next? Scaling Your BRRRR Investment Strategy
PropertyRadar can enhance your BRRRR method of real estate investment by helping you identify off-market and distressed properties.
PropertyRadar's robust dynamic lists can streamline the process of finding properties that meet your specific criteria within a geographic area.
Besides finding property opportunities, PropertyRadar's public record database can also help you learn critical details about the homeowner to strengthen your offer-making process.
PropertyRadar can help you find promising off-market and distressed assets that can help you get ahead of the game with better chances for success.
Finding off-market properties will lower the barrier to entry with lower initial prices, putting you in a position where you're more likely to add enough value to get a reasonable market price to refinance and get your cash back.
In addition, you can buy below market without paying commissions or other fees.
Once you've identified potential properties and motivated sellers with PropertyRadar, it's time to reach out to prospective sellers.
5 ways BRRRR investors can reach out to prospective sellers
Email - introducing yourself, your company, or your service over email is the first step in connecting with distressed property owners.
Calling/Texting - once you've made contact with distressed homeowners, following up with calls and texts is a great way to build rapport with anyone who's opted into receiving phone communication.
Direct Mail - any form of a physical piece of marketing or promotional material sent through the mail. You can connect with distressed owners with postcards, letters, brochures, etc.
Door Knocking - you can approach the property, talk to distressed owners and neighbors, and learn more about the property and the property owners.
Online Ads - Search and Social Media ads are a great way to spread awareness. A huge benefit is the ability to control how much or how little you spend per day.
Building generational wealth starts with finding and connecting with the right property.
Scale your BRRRR investment portfolio with your free trial of PropertyRadar today!