Seventy-Five “Tails” of Second Chances What has four wheels, 75 tails, and rides the interstate!…
The ABCs of the BRRRR Real Estate Investment Strategy
The acronym BRRRR stands for Buy, Renovate, Rent, Refinance, Repeat. The term “BRRRR” was created by real estate investors Brandon Turner and David Greene on the popular real estate podcast Bigger Pockets. Let me guide you through the five investment steps, plus share how I recently purchased a property here in Savannah, Georgia, employing the BRRRR process.
The BRRRR method has grown in popularity and is used by both newbie investors and seasoned pros. This methodology is attractive because it allows investors to grow their portfolios by using their current deals to fund their next purchase. The objective is to find a property that needs rehab, renovate the property to add value, then do a cash-out refinance to pull out equity. That equity can then fund the next purchase. You can utilize the BRRRR strategy over and over.
The BRRRR method works through the following steps. Let’s look at the BRRRR investment timeline.
Step 1. Buy. Identify a property that needs cosmetic fixes that you think you can buy below market value. Look for properties not currently listed in the Multiple Listing Service (MLS) by reaching out to sellers directly. Or team up with an investor-friendly, experienced agent, like myself, who is familiar with the BRRRR process and can assist you in finding properties that fit the BRRRR model.
Step 2. Renovate. After you purchase your new investment, start adding value by renovating the property. This step can be as little as paint and fixtures or a complete remodel of kitchens and bathrooms. You’ll want to focus on making specific updates that will translate into a higher value when it’s time for a new appraisal on your cash-out refinance. The end goal is a higher appraisal on the refinance so that you can borrow against the equity.
Step 3. Rent. Once you have completed the improvements on the home, market the property for rent and find a qualified tenant. Having a tenant in place will help you qualify for the new, higher mortgage refinancing. Lenders can use the rental income to help you qualify.
Step 4. Refinance. Once you have a paying tenant in place, begin the refinance process. It’s important to note; most banks require you to own a property for a six-month minimum before applying for a cash-out refinance. Due to your improvements, the renovated property should now appraise at a higher value. The bank will use the new appraised value to calculate your loan amount and the equity cash you can pull out. When you close the new loan, you can pull out the money for the difference, and it can be wired directly into your bank account. You now have the liquid funds to fund your next property.
Step 5. Repeat. Use the same BRRRR process on your subsequent investment property acquisition. You can continue this process repeatedly, rolling your equity cash into purchasing and renovating your next property.
My Personal BRRRR Investment Story
I have personal experience utilizing the BRRRR methodology to achieve my real estate investment goals. Here’s a BRRRR project I recently completed.
The property I selected had a purchase price of $200,000.
In this property, both the kitchen and bathroom needed to be renovated. To make these updates, I added $50,000 in cash to complete the renovations.
The new appraised value AFTER the renovations was $325,000. Big improvement!
After six months of working on the home and completing the renovation, I refinanced my old mortgage of $150,000 and took out a higher mortgage based on the new appraised value of $325,000.
The lender allowed me to borrow up to 75% of the new appraised value and obtain a new mortgage. To keep the monthly payment where I wanted it, I selected a new cash-out mortgage for approximately $225,000. The difference between the new mortgage of $225,000 and the original mortgage of $150,000 was $75,000 of equity.
After refinancing and paying off the first mortgage, I now had $75,000 in cash equity to pull out. This process is where the term “cash-out” to refinance originates. You’re borrowing the equity in the home and it is being paid directly to you.
When the refinance was completed, $75,000 was wired into my bank account. I can use these funds to invest in my next investment property.
If you’re looking for a property that fits the BRRRR method or you have questions about the process, please don’t hesitate to contact me. I’m an investor-friendly Realtor in the Savannah area with both professional and personal experience in real estate investment strategies.
Note: The information I have provided is a BRRRR overview. Every investor needs to consult with their own trusted financial advisors to ascertain the suitability of BRRRR methodology for their specific situation.
Seabolt Brokers | Christie’s International Real Estate