As you explore the potential of what an investment property can mean for you, you are likely to come across the acronym BRRRR. Other than the sound one makes when it is chilly outside, BRRRR means a lot in the world of real estate investment.
For investors looking to break through traditional molds, you might want to look no further than the BRRRR method. By buying, rehabbing, renting, refinancing, and repeating, you can start a cycle of smart investments that sets you up for life.
Here’s how.
Buying
The BRRRR method begins with buying a property, which almost always means financing. Since investors rarely have enough up-front cash to purchase a property outright, financing options are needed and allow investors to grow wealth relatively safely.
When it comes to using the BRRRR method, you want to strive for financing not more than 80% of a property’s value. Since investment properties necessitate a downpayment of 20% or more, this will be required regardless. However, the less you need to finance the better. Shoot for 70-75% if possible.
There are plenty of financing options to help you accrue the down payment for your investment property. No matter where you receive your loan, you want to strive for putting no more than 75% of the value of the property after you have made it renter ready into your investment. By doing this, you can continuously build your capital to grow your portfolio.
Be conservative in your estimates for property value after repairs. Plan for the worst. Keep a margin of error so that your investment keeps you in the black.
Rehabbing
Giving your investment property the facelift needed to maximize your returns comes with increasing both the functionality of the home as well as its money makers. The key here is common-sense renovations that will add quality without too much cost.
Consider:
Updating to hardwood or tile floors
Installing a new roof
Improving the landscaping
Adding a bedroom
Updating the kitchen
Every property will have different needs to make them rent ready, but sometimes it is best to go with a property that needs some work. This will ensure you get a lower price that can lend to a higher turnaround.
Renting
Before you can continue with the BRRRR method, you need to find quality renters. Now you should have your property in a position in which renters want to occupy it, so your job is finding the best candidates.
Since refinancing appraisers will take into account everything about the quality of the property and those renting it, you need to have satisfactory tenants. This means renters who are ready and able to pay the rent each month, who take great care of your property, and who are open to a little decorum when it comes time for the appraisal.
Opt for an interior appraisal for refinancing once your property is rented out. Let your tenants know well in advance and ask that they ensure the property is looking great. Perhaps even offer them a discount on next month’s rent for doing so. The higher appraisal value you can get for your property means more capital to borrow for greater investments.
While your mortgage rates may be greater by refinancing your property, you will be able to turn that money around into a broader portfolio. You may end up with less cash flow per property, but as your holdings accumulate, your wealth will increase more quickly.
RefiNancing
Properly refinancing your investment property starts with finding a financial institution that will offer cash-out loans against the appraised value of your property. This could be more difficult than it sounds, but by asking around investor networks you should be able to quickly find a fitting bank.
Once you find the ideal institution for your refinancing deal, provide them with all the proper information as accurately as possible. It is absolutely essential to acquire your financing on the highest possible appraisal value you can get. Without being able to secure this refinancing, your hard work will not give you the kind of investment mobility you need to build your portfolio.
As soon as you borrow on your appraised home value, you are ready to continue the BRRRR method for financial success.
Repeating
Continuing your investment journey requires attention to detail in each step of the method. You’ll be able to accrue more and more capital as your investments and properties grow, but only if you make wise decisions throughout the process.
Find the perfect properties in markets that will allow your investments to thrive. Then, ensure your renovation efforts can acquire a high appraisal. Secure a pre-approved loan when possible. Continue snowballing your real estate portfolio to accumulate a stable, thriving base of wealth for a financially independent future.
But don’t forget to consult financial experts every step of the way. Every bit of help you can get will ensure you make the most out of your investments, so don’t hesitate to reach out.
For more information on real estate investment and property management, contact 208.properties.