Heard of the BRRRR method and wondering what it is?
Well, you’ve come to the right place.
In this guide, we’re going to discuss what BRRRR stands for and how it works in real estate investing. We’ll then give you some detailed “how to” advice, and share a real-life example of the BRRRR method.
Let’s dive in.
What is BRRRR?
BRRRR stands for buy, rehab, rent, refinance, and repeat. It’s a real estate investment strategy where the investor buys distressed properties with other people’s money (hard money or private money), rehabs the property, rents it out to tenants, and then does a cash-out refinance that allows them to purchase a new property with the same funds.
The BRRRR method allows you to recycle your initial funds into new properties and grow your business beyond your personal financial capabilities — that’s the biggest benefit.
In fact, BRRRR is exactly the strategy that Ryan Dossey — our founder — has used to build a portfolio worth $8.8 million… which is why you’re going to be seeing some of his YouTube videos throughout this article!
But how exactly does the BRRRR method work? And more importantly, how can you start doing your own BRRRR deals? Let’s dive into the details.
It all starts with finding a good deal.
As the old real estate saying goes, “You make your money when you buy.”
That’s because you only make money if you find a great deal. In fact, we recommend trying to meet these two criteria with the properties you purchase as often as possible…
- Purchase homes that are likely to appreciate over time.
- Only purchase homes that are A-C class assets.
But how do you know if you’ve found a great deal?
You’ve probably heard of the 75% rule before — it states that an investor should pay no more than 75% of the ARV (After Repair Value) of a property. For BRRRR, though, you’ll also need to consider holding costs. Here’s some more details on the 75% rule.
The idea is that, if the ARV of a home is worth $200,000, an investor should pay no more than $150,000 minus holding costs and repair costs. Assuming repair costs are $30,000 and holding costs are $5,000, then in this example, the investor’s max offer on the home should be $115,000.
Of course, all of this assumes that you know how to determine the ARV of a property… which is easier said than done.
But it’s not rocket science.
Here’s a video where Ryan explains how to run comps on a property for free using Zillow (this is what he would do when he was just starting out.
Okay, so the final two questions are…
- How do you find deals in the first place?
- How do you secure private money or hard money for your BRRRR deals?
To find deals, we highly recommend sending direct mail every single month. This is the number one way that investors find deals and if it works for them… it’ll work for you. Most investors secure about one deal per 1,000 – 2,000 mailers, so consider that when you’re deciding how many mailers to send every month.
The best mailing lists are…
- Tax default mailing lists
- Vacant house lists
- Expired listing lists
- Pre-foreclosure lists
- Out-of-state landlord lists
You can pull data like this from Propstream. For creating mail that gets a response from as many people as possible, check out our sister company, Ballpoint Marketing, which creates hand-written (i.e. robot-written with real pen and ink) mailers.
As for securing funds for your deals (a critical part of the BRRRR method), check out our 2,000-word, 12-point guide to finding private money lenders.
Or check out the video below to learn how Ryan raises private money in his biz.
Assuming that you’ve found a good deal, secured funding, and purchased a property, it’s now time to rehab.
Of course, you should have a very good idea of rehab costs before you buy (the 75% formula doesn’t work without a rehab cost estimate).
And it’s difficult to overstate the importance of being accurate in your rehab cost estimate. This is one of the most common places for deals to go sideways — because an optimistic investor underestimates rehab costs.
So how do you determine how much it’ll cost to fix up a property?
Here’s a video from Jerry Norton where he explains a simple and quick method for estimating repair costs…
Those numbers should give you a ballpark idea, but as Jerry mentions in the video, the repair cost is subjective to your market and the specific property that you’ve found.
If you’re new to real estate investing, don’t be afraid to call contractors and ask for quotes before you make an offer or commit to buying.
Also, it’s never a bad idea to pay for a full-blown inspection. As a BRRRR real estate investor, every property becomes a long-term asset, so it’s worth spending a little extra money up front to have a professional inspector check the home for hidden damage you might not have noticed.
And remember: the goal isn’t to rehab the property until it’s in pristine condition; you simply want to rehab the property until it’s in a functional and liveable state for tenants.
Rehabbing the property is a critical part of the BRRRR process because it allows you to rent out the property and get it cash-flowing.
The next “R” in BRRRR stands for “Rent”.
You’ve found a deal, purchased it with someone else’s money, rehabbed it, and now it’s time to find some tenants to get the property cash-flowing. This is critical so that you can start paying back your loan (and ideally, make a little profit every month, too).
In fact, the only way the BRRRR method works is if your properties keep cash flowing.
That requires tenants… good tenants.
But how do you find good tenants? Well, the first step is marketing. List the rental on as many websites as you can: Zillow, Realtor, Aparments.com, Rent.com, etc. You can also put a sign in the yard of the property or pay for an ad in the local newspaper. The more you market it, the faster you’ll find tenants.
Here are some criteria for choosing tenants.
- Don’t consider tenants who’ve been evicted before.
- Tenants should make 2.5 to 3 times the cost of their rent.
- Verify the tenant’s income and rental history.
- If there’s no rental history, require someone to cosign.
- Check referrals.
Once you’ve found high-quality tenants, you obviously have to manage the property. You can do that yourself if you live in the same city, but we don’t recommend doing so if you want to grow your real estate portfolio beyond like 5 houses.
Instead, find a good property management company.
This is where the rubber meets the road and you find out if you got yourself a good deal in the first place.
You’ll want to do a cash-out refinance. This type of refinancing allows you to recoup and reinvest your own money or pay back your hard money lender so that you can find a new hard money lender.
So long as the property is cash flowing, it should pay for itself on the new mortgage.
Unfortunately, you’ll usually have to wait at least 12 months before doing a cash-out refinance — this is called the “seasoning period” and nearly all banks require it.
That’s why finding a good deal is so important… the deal can’t just be good right now… it’ll need to be good one year from now, too.
But finding a bank that will do a cash-out refinance can take some time. Seek out local regional community banks and ask them…
- Do they do cash-out refinancing on residential properties?
- What is the interest rate?
- How long is their seasoning period?
Try and stay away from institutional lenders, which typically have a much higher interest rate.
In the below video, Ryan Dossey will walk you through finding cash-out refinance lenders using List Source.
Now you repeat the process!
If your first deal went well, you have the choice of using the same private money lender or finding a new one.
With time, discipline, and no small dose of mathematical skepticism, you can purchase millions of dollars of real estate using the BRRRR method — Ryan Dossey has purchased more than $8 million worth of assets in just a couple of years!
A Real-Life BRRRR Example
To help you understand how BRRRR works in the real world, let’s look at an example…
As described in the video, these investors estimated the ARV of the property to be about $130,000 and repair costs to be about $30,000.
If we plug that into the 75% rule formula that we learned earlier, their purchase price should be no more than $67,500.
($130,000 x .75) – $30,000 = 67,500
They went a little bit above that and used private money to purchase the house from a wholesaler for $72,000.
This means that, upon buying and repairing the home, the investors immediately gained $32,500 in equity ($130,000 – $97,500) without spending any of their own money (one of the greatest benefits of the BRRRR method).
The investors then filled the home with tenants, charging $1,300 per month and cash-flowing about $200 per month (holding costs were $1,100 per month).
And finally, they did a cash-out refinance on the property, paid back their private money lender, and prepared to repeat the process over again.
That’s what a well-done BRRRR deal looks like.
You now understand what the BRRRR method is, why it’s appealing to real estate investors, and hopefully, how to start doing your own BRRRR deals!
Buy cheap, repair like a minimalist, pay close attention to the numbers, find good tenants, refinance as soon as possible, and repeat.
That’s the process.
Are you ready to get started?