What if you could grow your property portfolio by taking the cash (typically, somebody else's cash) you used to purchase one home and recycling it into another residential or commercial property, end over end as long as you like?

That's the facility of the BRRRR realty investing technique.

It enables investors to purchase more than one residential or commercial property with the same funds (whereas conventional investing needs fresh cash at every closing, and therefore takes longer to get residential or commercial properties).

So how does the BRRRR method work? What are its advantages and disadvantages? How do you do it? And what things should you think about before BRRRR-ing a residential or commercial property?

That's what we'll cover in this guide.

BRRRR means buy, rehabilitation, rent, refinance, and repeat. The BRRRR method is acquiring appeal since it enables financiers to utilize the exact same funds to purchase several residential or commercial properties and therefore grow their portfolio faster than standard realty financial investment methods.

To begin, the investor finds a bargain and pays a max of 75% of its ARV in money for the residential or commercial property. Most loan providers will only loan 75% of the ARV of the residential or commercial property, so this is necessary for the refinancing stage.

( You can either use cash, difficult cash, or private cash to acquire the residential or commercial property)

Then the investor rehabs the residential or commercial property and leas it out to tenants to develop consistent cash-flow.

Finally, the investor does what's called a cash-out re-finance on the residential or commercial property. This is when a banks provides a loan on a residential or commercial property that the financier already owns and returns the cash that they utilized to purchase the residential or commercial property in the first location.

Since the residential or commercial property is cash-flowing, the financier is able to pay for this brand-new mortgage, take the cash from the cash-out refinance, and reinvest it into brand-new systems.

Theoretically, the BRRRR process can continue for as long as the investor continues to buy smart and keep residential or commercial properties occupied.

Here's a video from Ryan Dossey describing the BRRRR process for novices.

An Example of the BRRRR Method

To understand how the BRRRR process works, it may be handy to walk through a fast example.

Imagine that you find a residential or commercial property with an ARV of $200,000.

You anticipate that repair work costs will have to do with $30,000 and holding expenses (taxes, insurance, marketing while the residential or commercial property is uninhabited) will be about $5,000.

Following the 75% rule, you do the following mathematics ...

($ 200,000 x. 75) - $35,000 = $115,000

You provide the sellers $115,000 (limit deal) and they accept. You then discover a hard money lending institution to loan you $150,000 ($ 35,000 + $115,000) and provide a down payment (your own money) of $30,000.

Next, you do a cash-out re-finance and the new lender agrees to loan you $150,000 (75% of the residential or commercial property's worth). You settle the tough cash lending institution and get your deposit of $30,000 back, which permits you to duplicate the process on a new residential or commercial property.

Note: This is just one example. It's possible, for instance, that you might obtain the residential or commercial property for less than 75% of ARV and wind up taking home money from the cash-out re-finance. It's likewise possible that you might spend for all acquiring and rehab expenses out of your own pocket and after that recoup that cash at the cash-out re-finance (rather than utilizing personal cash or difficult money).

Learn How REISift Can Help You Do More Deals

The BRRRR Method, Explained Step By Step

Now we're going to walk you through the BRRRR technique one step at a time. We'll discuss how you can find excellent offers, safe and secure funds, compute rehab costs, attract quality occupants, do a cash-out refinance, and repeat the whole process.

The initial step is to discover excellent offers and purchase them either with money, personal money, or hard money.

Here are a few guides we've developed to help you with discovering top quality offers ...

How to Find Real Estate Deals Using Your Existing Data
The Ultimate Real Estate Investor Marketing Plan: Better Data, More Deals


We likewise advise going through our 14 Day Auto Lead Gen Challenge - it just costs $99 and you'll discover how to develop a system that creates leads using REISift.

Ultimately, you don't want to purchase for more than 75% of the residential or commercial property's ARV. And preferably, you wish to buy for less than that (this will lead to money after the cash-out re-finance).

If you desire to find private money to buy the residential or commercial property, then attempt ...

- Reaching out to good friends and household members
- Making the loan provider an equity partner to sweeten the offer
- Networking with other business owners and investors on social media


If you wish to find hard cash to buy the residential or commercial property, then try ...

- Searching for hard money loan providers in Google
- Asking a real estate agent who works with financiers
- Requesting referrals to tough cash lending institutions from local title business


Finally, here's a quick breakdown of how REISift can assist you find and secure more offers from your existing data ...

The next action is to rehab the residential or commercial property.

Your objective is to get the residential or commercial property to its ARV by investing as little cash as possible. You definitely do not wish to overspend on repairing the home, spending for extra home appliances and updates that the home doesn't require in order to be valuable.

That doesn't imply you must cut corners, though. Ensure you hire credible contractors and repair whatever that needs to be fixed.

In the video listed below, Tyler (our founder) will show you how he approximates repair work costs ...

When purchasing the residential or commercial property, it's finest to approximate your repair work costs a little bit greater than you expect - there are often unexpected repair work that show up throughout the rehab stage.

Once the residential or commercial property is completely rehabbed, it's time to discover tenants and get it cash-flowing.

Obviously, you want to do this as quickly as possible so you can re-finance the home and move onto purchasing other residential or commercial properties ... but don't hurry it.

Remember: the concern is to discover great occupants.

We advise utilizing the 5 following requirements when considering tenants for your residential or commercial properties ...

1. Stable Employment
2. No Past Evictions
3. Good References
4. Sufficient Income
5. Good Financial History


It's much better to reject an occupant because they don't fit the above criteria and lose a few months of cash-flow than it is to let a bad tenant in the home who's going to cause you issues down the road.

Here's a video from Dude Real Estate that uses some excellent recommendations for discovering top quality tenants.

Now it's time to do a cash-out refinance on the residential or commercial property. This will allow you to settle your tough money loan provider (if you utilized one) and recover your own expenses so that you can reinvest it into an additional residential or commercial property.

This is where the rubber satisfies the roadway - if you found a great offer, rehabbed it sufficiently, and filled it with top quality tenants, then the cash-out re-finance should go smoothly.

Here are the 10 finest cash-out re-finance lenders of 2021 according to Nerdwallet.

You might likewise discover a local bank that wants to do a cash-out refinance. But that they'll likely be a seasoning duration of at least 12 months before the lender wants to offer you the loan - preferably, by the time you're made with repair work and have actually discovered renters, this flavoring duration will be ended up.

Now you repeat the procedure!

If you utilized a private cash loan provider, they might be happy to do another deal with you. Or you might use another tough cash lender. Or you could reinvest your cash into a brand-new residential or commercial property.

For as long as everything goes smoothly with the BRRRR technique, you'll have the ability to keep acquiring residential or commercial properties without truly using your own money.

Here are some benefits and drawbacks of the BRRRR realty investing method.

High Returns - BRRRR needs extremely little (or no) out-of-pocket money, so your returns ought to be sky-high compared to standard realty investments.

Scalable - Because BRRRR enables you to reinvest the very same funds into new units after each cash-out refinance, the design is scalable and you can grow your portfolio really quickly.

Growing Equity - With every residential or commercial property you acquire, your net worth and equity grow. This continues to grow with appreciation and make money from cash-flowing residential or commercial properties.

High-Interest Loans - If you're using a hard-money loan provider to BRRRR residential or commercial properties, then you'll likely be paying a high rate of interest. The goal is to rehab, rent, and re-finance as rapidly as possible, however you'll usually be paying the hard cash lenders for at least a year or so.

Seasoning Period - Most banks require a "seasoning period" before they do a cash-out re-finance on a home, which suggests that the residential or commercial property's cash-flow is steady. This is typically at least 12 months and often closer to 2 years.

Rehabbing - Rehabbing a residential or commercial property has its risks. You'll have to deal with specialists, mold, asbestos, structural inadequacies, and other unexpected problems. Rehabbing isn't for the light of heart.

Appraisal Risk - Before you buy the residential or commercial property, you'll desire to make certain that your ARV computations are air-tight. There's always a risk of the appraisal not coming through like you had hoped when refinancing ... that's why getting an excellent deal is so darn crucial.

When to BRRRR and When Not to BRRRR

When you're questioning whether you need to BRRRR a particular residential or commercial property or not, there are two questions that we 'd suggest asking yourself ...

1. Did you get an excellent deal?
2. Are you comfortable with rehabbing the residential or commercial property?


The very first concern is very important due to the fact that a successful BRRRR deal depends upon having actually found a good deal ... otherwise you might get in difficulty when you attempt to re-finance.

And the second concern is necessary because rehabbing a residential or commercial property is no small task. If you're not up to rehab the home, then you may consider wholesaling instead - here's our guide to wholesaling.

Wish to discover more about the BRRRR approach?

Here are a few of our preferred books on the topics ...
highyield-safeinvestments.com
Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Residential Or Commercial Property Investment Strategy Made Simple by David M. Greene
The Book on Estimating Rehab Costs: The Investor's Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs by J Scott
How to Purchase Real Estate: The Ultimate Beginner's Guide to Getting going by Brandon Turner
Final Thoughts on the BRRRR Method

The BRRRR technique is a terrific way to purchase real estate. It allows you to do so without using your own cash and, more importantly, it permits you to recoup your capital so that you can reinvest it into brand-new units.