Whether you’re a seasoned veteran or a green horn just getting started, The BRRRR (Buy-Renovate-Rent-Refinance-Repeat) method is a time tested strategy to quickly build up that ever important number: CASHFLOW. We here at illianadeals.com have recently spoken with a lot of investors who are having phenomenal results doing this.
The main goal behind a BRRRR strategy is to pull out all of the money you invested into a property when you refinance it. So that you effectively bought a cash-flowing property for nothing! Here’s a break down of the BRRRR method below.
B – Buy
As the saying goes, you make your money when you buy. All good deals involve a good purchase! The thing to remember on property you plan to hold is future numbers. You will get an appraisal when you go to refinance and often times the buyer may disagree with the number. The problem is: who is to say whether you or the appraiser are right (you ask 100 people, you’ll get 100 different numbers!). Don’t get me wrong, I’ve witnessed some ridiculous appraisals that are too low and had to be re-evaluated. On the other hand, there are also COUNTLESS homeowners who believe their houses are worth some crazy high price . . Thanks a lot Zillow. . . The main thing is to always do your due diligence and stay smart on your purchase!
R – Rehab
At the most basic level, you as the landlord need to make your rental properties both livable and functional while at the same time making the improvements that increase the property value. Once these updates or renovations are done, they will add value to a property and increasing the rental rates should always be considered as well. But beware, as an investor you must be careful not to make excessive or unnecessary upgrades. These will eat up your budget fast! We always suggest to only do home improvement projects that will provide a high return on investment for you.
R – Rent
The 1% rule is an good way to calculate how much rent you should charge. When going by the 1% rule, the monthly rent should equal 1% or more of what you paid for the house including all improvements. Obviously, if rental rates indicate that rent should be higher for your property’s area, that’s great news!
R – Refinance
Not long ago, it was very hard to find a bank willing to refinance single-family rentals. Now, however, it has gotten a lot easier. When you’re looking for these investor friendly banks, here are a couple things that you will need to ask:
1. Do they currently offer cash out options or will they only pay off the debt? If they won’t offer a cash out option, you should probably move on to another bank.
2. What kind seasoning period do they require? The term “seasoning period” means how long you must own a property before the bank will lend on the appraised value. In order for the BRRRR strategy to work, you must borrow on the appraised value. These days, many banks are willing to lend on the appraised value as soon as a property has been rehabbed and rented! These are definitely the best banks to find.
The best way to find such banks is to ask around. Ask any other investors you know what banks they have used. You can also search online or go to your local real estate club and ask around there. (We here at illianadeals.com have some investor friendly lender referrals if you need one!)
R – Repeat!
If you do the BRRRR strategy properly, you’ll have a cash-flowing property for little to none of your money being tied up in it, allowing you to repeat the process over and over again. This can build up your cashflow both quickly and efficiently. But it’s all up to you to make it happen!
Do you currently use the BRRRR strategy? Have any questions about this method of investing? Feel free to give us a shout! We look forward to sending you over our deals and wish you a happy and prosperous new year in 2020!
To your Success,
– The illiandeals.com team