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Mint Images/Getty Images June 02, 2022 Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Buying or selling a home is one of the biggest financial decisions an individual will ever make. Our real estate reporters and editors focus on educating consumers about this life-changing transaction and how to navigate the complex and ever-changing housing market. From finding an agent to closing and beyond, our goal is to help you feel confident that you're making the best, and smartest, real estate deal possible. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re interested in residential real estate investing, you may have heard of the BRRRR method. The acronym stands for Buy, Rehab, Rent, Refinance, Repeat. Similar to , this investment strategy focuses on purchasing properties that are not in good shape and fixing them up. But instead of reselling for a one-time profit, you rent them out, generating income while building equity to put toward your next purchase.
What is the BRRRR method
The BRRRR method is a way to . The name lays out the steps an investor needs to take to make money using this method. With this investment strategy, investors focus on buying properties that need work. Then they rehab them, rent them out to cover their mortgage, do a and use their profit to repeat it all over again with another property. It’s not for beginners — BRRRR is complex and requires experience, knowledge and finesse. Purchasing a home at a discount price is the key to making a profit with the BRRRR method. “All of the money you make will be when you buy,” says Todd Baldwin, a seasoned real estate investor who teaches finance courses online. “Rehab, renting, refinancing, and even selling the property are all great, but the money is made when you buy. If you can get a property on terms or under , you are doing awesome.”
What BRRRR stands for
This acronym lays out each step the method requires, in order: Buy, Rehab, Rent, Refinance and Repeat. Buy
Investors using this method shouldn’t buy just any property. It’s important to focus on , but will also be a sound investment — in other words, it needs to be a good deal. Do your research and make sure you know exactly how much work a property requires. Create a timeline for when renovations will be completed and how soon you can start renting out the property. You should fully understand what you are signing up for. Rehab
Determine your method for renovating the property. Will you be ? Identify the best ways to make your property livable and attractive to renters within an efficient timeline. “For BRRRR specifically, have a clear understanding of the scope of work needed to be done for the rehab,” says Baldwin. “You want to know your exact cost as well as how long it will take to complete the work. You can lose money very fast if you don’t have a firm grasp on those two aspects.” Investors should focus on that offer the highest return on investment. This typically means and bathrooms as needed and, obviously, making sure any hazards are removed. Keep your budget in mind as you plan: A kitchen remodel can cost anywhere from $13,471 to $38,252, . Rent
When the rehab is complete and the property is livable, rent it out as soon as possible. The idea is to set a monthly price that will cover your mortgage payment — or, hopefully, more. You’ll also need to determine whether you will or use a property management company. The sooner you get it rented out, the sooner that passive income will start rolling in. Refinance
Once you have a solid renter in place, it becomes a waiting game while you in the property. That’s because the next step is refinancing, and . A cash-out refi allows you to tap your home’s equity to withdraw cash for any purpose. Different lenders will have different guidelines around how long you must own a property for, or how much equity you must have accrued, to qualify for this kind of refinancing. The cash you withdraw, in this case, is also the final step in the process. Repeat
This last step is the one that makes BRRRR so appealing — and potentially lucrative. With the cash from your refinance, you invest in a new property and start the whole process over again. Hypothetically, investors can repeat the process over and over, making money on each new property continuously.
Who is the BRRRR method best for
“No investment comes without risk,” says Baldwin. The BRRRR method is not for everyone — it’s best for those who have solid real estate knowledge and experience, and can accurately gauge market values, renovation costs and more. A miscalculation of price or budget, or failure to secure a renter at the right time and price, can result in big monetary losses. A BRRRR investor must also have enough time to devote to the process. Looking for properties, renovating them and acting as a landlord (potentially for multiple units) is a big time commitment.
BRRRR pros and cons
This investment method offers great benefits, but there are definite drawbacks as well. Pros
You earn passive income: BRRRR investors can create a system that allows them to , either as an additional revenue stream or to live off of. You build equity: Buying and holding on to multiple properties means your equity will keep going up. It’s repeatable: Unlike flipping a house, the BRRRR method isn’t one-and-done — you can keep repeating the strategy and build wealth exponentially as you go. Cons
Rehab can be expensive and time-consuming: Quality renovations usually do not come cheap, or quick. Overseeing the work can be stressful. And depending on the extent of repairs needed, you may need to take out a . These loans typically have higher interest rates and can be costly. It takes time to make a profit: BRRRR doesn’t offer fast cash. It’s a slow and steady kind of strategy. You have to put in work and time before you start making money. Being a landlord is a lot of work: Finding and managing renters can be difficult. And the more you repeat the process, the more tenants you will have. There’s financial risk: There are a lot of educated guesses in BRRRR. Whether you estimate a home’s post-rehab value incorrectly, overestimate the amount of rent you can charge, or underestimate the renovation budget, there is always a chance you could lose money. Bottom line
Before you decide to jump into BRRRR real estate investing, research thoroughly and talk to other people who have done it. Baldwin even suggests finding a mentor, if you can. The method can be very lucrative, but you have to know what you are doing — novice investors may be in over their heads. SHARE: Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Related Articles