If you're considering using the "Buy Renovate Rent Refinance Repeat" (BRRRR) strategy to build wealth and passive income through real estate investing, there are a few key things you need to know. In this article, we'll delve into the details of the BRRRR strategy and provide guidance on what you need to know in order to make it work for you.
What is the BRRRR Strategy?
The BRRRR strategy is a way to make money with real estate. It stands for Buy Renovate Rent Refinance Repeat. Here's how it works:
- Buy a property: First, you find a property to buy. You might buy a house, an apartment building, or something else.
- Renovate the property: Next, you fix up the property. You might paint the walls, replace the carpet, or fix any problems. You do this to make the property look nice and to increase its value.
- Rent the property: After you renovate the property, you can rent it out to people. They will pay you money every month to live there.
- Refinance the property: After you've been renting out the property for a while, you can refinance it. Refinancing means you take out a new loan to pay off the old loan. You do this to get a better interest rate or to get more money from the property.
- Repeat the process: Once you've refinanced the property, you can use the money to buy and renovate another property. Then you can rent it out and refinance it again. You can keep doing this over and over to make more money.
Why Do People Use the BRRRR Strategy?
People use the BRRRR strategy to make money and to build wealth. They can make money by renting out the property and by increasing its value through renovations. They can build wealth by owning more and more properties.
What Do You Need to Know to Use the BRRRR Strategy?
To use the BRRRR strategy, you need to know how to find good properties, how to renovate them, and how to be a good landlord. You also need to know how to refinance a property and how to manage your money.
Is the BRRRR Strategy Right for Me?
The BRRRR strategy might be a good fit for you if you have some money to invest and you want to make more money by owning rental properties. But it's not right for everyone. You need to be prepared to deal with the challenges of being a landlord, like fixing things when they break and finding good tenants. You also need to be careful with your money and make sure you don't spend more than you can afford.
The Ideal Characteristics of a BRRRR Property
An ideal property for the BRRRR strategy is one that has the potential for value appreciation after renovations, is located in an area with strong rental demand, and is in good condition with minimal required repairs.
Here are some specific characteristics to look for in an ideal BRRRR property:
- Good location: The property should be located in an area with strong rental demand, such as a desirable neighbourhood or a region with a growing population or job market.
- Potential for value appreciation: The property should have the potential to increase in value after renovations, such as through cosmetic updates or by adding features or amenities that will attract renters.
- Minimal repairs needed: The property should be in good condition with minimal required repairs, as significant repairs can eat into the profit potential of the BRRRR strategy.
- Affordable purchase price: The property should be affordable to purchase and renovate, in order to maximize the potential return on investment.
- Potential for cash flow: The property should be able to generate positive cash flow, meaning the rental income covers the expenses of owning and managing the property, including the mortgage, property taxes, insurance, and repairs.
By carefully selecting properties with these characteristics, investors can increase their chances of success with the BRRRR strategy.
Duplex or Triplex Conversion for Increasing Value
One way to potentially increase the profitability of a property using the BRRRR strategy is to convert a single-family home into a duplex or triplex, which allows for multiple units to be rented out.
Here are some things to consider when converting a single-family home into a multi-family property:
- Zoning and building codes: Before making any changes to the property, it's important to check with local zoning and building codes to ensure that the conversion is allowed and that all necessary permits can be obtained.
- Renovation costs: Converting a single-family home into a multi-family property typically requires significant renovations, such as adding additional kitchens, bathrooms, and separate entrances for each unit. These renovations can be costly, so it's important to carefully budget and plan for them.
- Rental demand: It's important to consider the rental demand in the area where the property is located, as well as the type of units that are in demand. For example, a triplex with three one-bedroom units may be more desirable than a duplex with two three-bedroom units.
- Cash flow: After the renovations are complete and the units are rented out, it's important to carefully track the cash flow of the property to ensure it is generating positive income.
Overall, converting a single-family home into a duplex or triplex can be a good way to increase the profitability of a property using the BRRRR strategy, but it's important to carefully consider the costs, zoning regulations, and rental demand before embarking on this venture.
Working With a Broker When Using the BRRRR Strategy
When using BRRRR strategy, it's important to work with an experienced mortgage broker to help you secure financing for your properties. A mortgage broker is a professional who works with multiple lenders to find the best mortgage product for a borrower's needs.
Here are a few reasons why working with a mortgage broker is important when employing the BRRRR strategy:
- Knowledge and expertise: An experienced mortgage broker has a deep understanding of the various mortgage products available and can help you find the one that best fits your investment goals and financial situation.
- Efficiency: A mortgage broker can save you time and hassle by working with multiple lenders on your behalf, rather than you having to shop around and apply with each lender individually.
- Negotiating power: A mortgage broker has relationships with multiple lenders and can often negotiate better terms and rates on your behalf.
- Guidance: A mortgage broker can provide valuable guidance and advice throughout the mortgage process, helping you to make informed decisions about your financing options.
Overall, working with an experienced mortgage broker can be a valuable resource when using the BRRRR strategy, as they can help you secure the best financing for your properties and maximize your investment potential.