The BRRRR method of real estate investing (Buy ➡️ Rehab ➡️ Rent ➡️ Refinance ➡️ Repeat) has become a popular strategy in recent years to maximize gains in investment real estate.
Popularized by David Greene of BiggerPockets and detailed in the excellent namesake book Buy, Rehab, Rent, Refinance, Repeat, it has been utilized by many investors to scale rapidly build great wealth through real estate.
What has made BRRRR so popular? The key to the growing popularity of BRRRR is the ability to recycle capital quickly (use the same $$ to buy multiple properties per year) and to build up a recurring revenue portfolio that creates income streams every month.
However, as we go through a volatile market with lots of uncertainty in real estate, there is a lot of uncertainty around the question of whether the BRRRR strategy still makes sense. Analysis paralysis is common in real estate investing and to make money, your BRRRR does not NEED to be perfect. Perfect = enemy of good.
Here are 5 misconceptions about BRRRR investing that should not be holding you back:
- You Need to Buy in All Cash to Start
- You Must Commit to Hold (vs. Flip)
- You Need to Rent It Out Long Term
- You Need to MAX Leverage and Leave No Equity in Your Property
- You Need a Bank to Refinance
Traditionally BRRRR deals are to be bought in all cash, to close quickly and win the deals vs. investors w/funding contingencies and risk. Especially in the super-hot and competitive market of 2020-2021.
This is not at all necessary. Using a private bridge lender that can finance the purchase/rehab loan quickly and efficiently will absolutely do the trick. Easy Street Capital can fund flips in 48 hours w/ no appraisal through our highly rated EasyFix program!
To the contrary, the best deals have optionality and ability to unemotionally pick the best strategy once rehab is finished (instead of being locked into holding permanently or flipping into an uncertain market).
Particularly in volatile markets like this, the superior strategy is to crunch the numbers once rehab is completed. Depending on what makes the most sense, you can sell or rent/refinance and hold once the property is fixed up. Hold firm on price and keep/refinance if your original target sale proceeds number isn’t hit!
With property values and interest rates skyrocketing this year, ability to cash flow can be tough, especially with high leverage &in top markets. Many investors think they can’t refinance unless rent > PITIA and a lease is signed, a tough ask.
However, a long-term lease that cash flows the property is NOT necessary. Savvy investors are utilizing investment properties as short term rentals (airbnb, etc.), which generally generates 2X income as a long-term rental. You can hold as a STR for the “Rent” piece of BRRRR and double cash flow!
Yes, a big draw for the BRRRR method is the seductive prospect of the cash-out refinancing leaving zero basis in your property and having a cash flowing rental for “free”.
BUT, with interest rates rising, its not absolutely necessary to take max leverage, especially heading into a potential recession – its OK to be conservative. Leaving $ in the property and a lower LTV (70% or 65%) is SMART, not a crime. A cushion and higher DSCR is 100% OK.
A lot of would-be BRRRR investors are hesitant because of nerves about the third R – refinance. What if I hit a snag and don’t qualify? Will “seasoning” requirements force me to hold for a year? What if the bank stops lending for whatever reason?
The Good News? You don’t need a traditional bank, there are private lenders that are super flexible and can provide refinancing quickly, efficiently and with competitive rates and leverage. BONUS – find a lender that do BOTH the purchase/rehab loan AND the cash-out refi.
Easy Street Capital is the PERFECT BRRRR lender. We can do both bridge and perm (30-year) loans all under one roof. This makes it 1000% times easier with ONE trusted lender every step of the way.
Our EasyRent program offers 75% ARV financing, 100% of basis after 3 months ownership at ultra-competitive rates.
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