When I first started learning about real estate investing I saw the letters BRRRR showing up here and there. At first I ignored it. Thought it was just a silly irrelevant acronym. Oh how I was wrong. The term kept coming up in books and YouTube videos and it got the better of me. And it now has become my goal!
BRRRR is an acronym for Buy, Renovate/Rehab, Rent, Refinance and Repeat. It is a real estate investing strategy used by many smart minded people around the world. In simple it involves buying a property, renovating it to add value, rent it out to a tenant, refinance the property with the banks to free up equity and lastly repeat the process.
The steps involved in BRRRR investing
As simple as 5 steps sound, BRRRR is much harder said than done and I will explain why.
BUY- The first step is buying a property and it just happens to be the hardest! This step can involve countless weeks or months researching and sorting through real estate listings. The aim of this step is to end up with a house under market value. Not only that, you want to be looking at a property where you can identify points of improvement for the house that can be then renovated and refurbished. So it goes without saying a rundown property COULD be a hidden gold mine. And you will find out exactly why below. It is best in this stage to follow the quote below!
"Best to buy the worst house in the best street opposed to the best house in the worst street"
RENOVATE/REHAB: I would look at this as the fun stage! You have bought your property and now it's time to give it a face lift. The idea of this is to increase the properties value and in turn increase your equity in the property.
The two main aims you should be looking at for this stage is:
1. To have a habitable house where as a standard you would be happy to live in
2. Make improvements (renovate and upgrade) that WILL IMPROVE the properties value
The point of this will be highlighted in the later steps. But basic improvements can be made to your property such as:
- Laying new carpet
- Repainting the walls
- Removing old wallpaper
- Renewing bathroom or kitchen tiles
- Full kitchen or bathroom renovations
- Basic landscaping around front and back yards
- Adding extra rooms or removing walls to make bigger rooms
The list can go on and on. And it is quite apparent that some of these things can cost a lot more than others. Especially improvements that will require tradesmen. However, in turn these improvements can add tens of thousands of dollars to the value of the property. A worthy investment!
RENT- So now your property looks beautiful with its new facelift. What's next?! Well. You find someone to live in your property, a tenant! This is where you start to make (hopefully) some return on your investment.
Finding a tenant may be a hard task depending on what area your property is located in and the demand associated with it. However, I would not recommend settling for the first tenant that applies, being fussy may benefit you in the long term. Why you may ask? Well, having a good tenant will make your life so much easier opposed to having a bad tenant. After all the tenant is your source of income!
You are wanting the tenant to treat your property as well as you would. Any damage that they do could come out of your pocket! Along with this you most likely have taken out a loan to fund buying your property hence you have loan repayments. The strategy behind renting out your property is to lighten the loan repayments and maybe (hopefully!) cover all of the loan repayments and still have leftover cash for your pocket! Hence a tenant that pays on time is going to incredibly help the process.
REFINANCE- If you have got to this stage you have done very well! Congratulations! Now it's time to refinance. This involves re evaluating the value of your property and hopefully use the
extra equity from that property (due to renovations and appreciation) to apply for a new loan hence access to more money. And what do you do with that new money.....?
REPEAT!- Now you got back to square one and start again! But hopefully at this stage however you have a property on the side thats paying itself off! Your wealth is literally building in the background! And better this the more times you repeat the process the better and more efficient you will become!
The risks associated with BRRRR real estate investing
Like any investment strategy it may look black and white on paper and a guaranteed way to make money but it's not. Especially the BRRRR strategy. This is because there is a multitude of factors that could go wrong. In fact in every stage there is risks associated. The strategy heavily relies on numbers and figures so getting your head around them will certainly benefit you.
Risk 1: Finding a good opportunity
Many people can become impatient or frustrated when all they have been doing is scrolling through property listing making no progress and finding no good deals. This step is arguably the most difficult step as it is a patience game. If you find yourself impulse buying out of frustration on a bad deal your results will be impacted heavily and your chance of successfully repeating the process will be shattered. Thus, being patient and smart with your decisions and offers on properties is imperative.
Risk 2: Finding a good quality tenant
As briefly stated above finding a tenant that pays on time and treats your property the way you would can alleviate A LOT of stress. The bigger risk that can associate with this investing strategy is vacancy. Having your property sitting there with no tenant can become a nightmare. Why you ask? Well you have loan repayments don't you? So instead of a tenant paying it off for you, you are paying it back! Hence EXTRA financial stress which no one wants.
Then the risk associated with not having a good tenant is if the tenant is reckless with maintaining and caring for your property. If a tenant suddenly ups and leaves leaving behind a trail of damage and rubbish your the one that is stuck out of pocket to fix it all. And we don't want that!
Risk 3: Cost of renovating not increasing the value of your property
Now this risk is a less common one as adding value to your home can be done quite easily. However there is a risk of some sort with a so called can of worms that you can open. First of all if you choose to do the more bigger renovating projects such as a full kitchen or bathroom renovation you can be out of pocket a lot of money. Tradesmen can charge through the roof! When it comes to big renovations it can be very costly with no benefit being seen till the later stages. Secondly there can be many issues that unfold before you when you start to "fix up" your property. Hidden costs and problems can be hidden everywhere so be warned!
Is BRRRR strategy real and achievable?!
Absolutely! Over at Bigger Pockets Brandon Turner lives by this method! Click the link to see a very practical approach to the BRRRR investment strategy. But it is absolutely achievable however if you are completely new (a real estate virgin!) you are going to want to do absolutely everything possible to make your first deal a successful one.
And what is the best way to do this?! Learning! It is highly recommended you further read and watch videos in order to greater your knowledge. If you want to be successful in this field you need to be able to learn from other people's mistakes and take on board their tips!
If you can be disciplined and determined to learn about property investing in general and seek advice from others the BRRRR strategy is extremely achievable for you! And with that, financial abundance will come!
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