What is a BRRRR?
BRRRR is the acronym for a real estate investment strategy. The strategy must be performed in the acronym’s order:
The investor needs to find a property that needs rehab and is considered distressed.
Buying Distressed Properties
Investors buy distressed properties as they will be able to purchase them below market value. This will allow investors to benefit from appreciation post-rehab as the property will now be at market value, if not more due to the improvements.
This strategy requires investors to renovate the distressed property. Investors should make a list of all potential exterior and interior rehab that the property will require. Potential renovations include:
- Decks and porches
Investors make lists like these so that they can categorize their rehab opportunities into three sections:
- Light rehab
- Moderate rehab
- Heavy rehab
Investors should analyze a deal before purchasing a property to ensure profitability. Key metrics that should be taken into consideration before rehabbing a property are:
- Estimate total rehab costs
- Average home value in the area
- Fix and flip value
- After repair value
The investor can rent the property out post rehab and begin to cash flow the property. The investor will now benefit from appreciation and rental income.
Renting to the right tenant
It’s easy for an investor to jump at the first tenant that wants to rent his property as investors are eager to begin cash flowing the property. However, not choosing the right tenant can lead to a poor performing investment property. Investors should do due diligence on each potential tenant:
- View their credit score
- Review their credit report
- Request proof of income
- Request a letter of recommendation from a former landlord
- Run a background check
Once the property has been rehabbed, rented out and is cash flowing, it’s considered stabilized and ready to refinance. Cash-out refinances allow real estate investors to transform their properties equity into cash. This increases your loan amount but enables you to go acquire another property.
Investors repeat this investment strategy by using their cash-out refinance funds to acquire another property that they can rehab, rent, and refinance. This strategy can be repeated as many times as the investors desires.