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

That's the premise of the BRRRR property investing technique.
reddit.com
It allows investors to purchase more than one residential or commercial property with the very same funds (whereas standard investing needs fresh money at every closing, and hence takes longer to acquire 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 consider before BRRRR-ing a residential or commercial property?

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

BRRRR means buy, rehab, rent, re-finance, and repeat. The BRRRR method is getting appeal since it enables investors to utilize the exact same funds to buy several residential or commercial properties and thus grow their portfolio faster than conventional real estate financial investment techniques.

To start, the investor discovers 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 money, hard money, or personal cash to buy the residential or commercial property)

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

Finally, the financier does what's called a cash-out refinance on the residential or commercial property. This is when a financial organization offers a loan on a residential or commercial property that the investor already owns and returns the money that they used to buy the residential or commercial property in the very first location.

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

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

Here's a video from Ryan Dossey discussing the BRRRR procedure for newbies.

An Example of the BRRRR Method

To understand how the BRRRR procedure works, it may be useful 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 expenses will have to do with $30,000 and holding costs (taxes, insurance coverage, marketing while the residential or commercial property is uninhabited) will have to do with $5,000.

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

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

You use the sellers $115,000 (the max offer) and they accept. You then discover a hard money lending institution to loan you $150,000 ($ 35,000 + $115,000) and give them a down payment (your own cash) of $30,000.

Next, you do a cash-out re-finance and the new lending institution consents to loan you $150,000 (75% of the residential or commercial property's worth). You pay off the hard cash loan provider and get your down payment of $30,000 back, which allows you to duplicate the procedure on a brand-new residential or commercial property.

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

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 approach one step at a time. We'll explain how you can discover good offers, safe and secure funds, determine rehab expenses, attract quality occupants, do a cash-out refinance, and repeat the entire procedure.

The initial step is to discover excellent deals and acquire them either with cash, personal money, or hard money.

Here are a couple of guides we have actually produced to help you with discovering top quality deals ...

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


We also recommend going through our 2 week Auto Lead Gen Challenge - it just costs $99 and you'll learn how to develop a system that creates leads utilizing REISift.

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

If you wish to find personal money to buy the residential or commercial property, then try ...

- Connecting to family and friends members
- Making the loan provider an equity partner to sweeten the offer
- Connecting with other entrepreneur and investors on social networks


If you desire to discover hard money to purchase the residential or commercial property, then attempt ...

- Searching for tough money loan providers in Google
- Asking a property representative who works with financiers
- Requesting referrals to tough cash lenders from local title business


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

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

Your objective is to get the residential or commercial property to its ARV by spending as little cash as possible. You absolutely do not wish to spend beyond your means on repairing the home, paying for extra appliances and updates that the home doesn't require in order to be marketable.

That doesn't mean you should cut corners, though. Make sure you employ reliable professionals and repair everything that requires to be fixed.

In the video below, Tyler (our creator) will show you how he approximates repair expenses ...

When buying the residential or commercial property, it's best to approximate your repair work costs a little bit greater than you anticipate - there are generally unanticipated repair work that come up during the rehab stage.

Once the residential or commercial property is totally rehabbed, it's time to find renters 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 do not rush it.

Remember: the priority is to find good tenants.

We recommend utilizing the 5 following requirements when thinking about renters 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 turn down a renter due to the fact that they do not fit the above criteria and lose a couple of months of cash-flow than it is to let a bad occupant in the home who's going to cause you problems down the road.

Here's a video from Dude Real Estate that offers some great suggestions for finding top quality renters.

Now it's time to do a cash-out re-finance on the residential or commercial property. This will allow you to pay off your tough money lender (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 discovered a bargain, rehabbed it adequately, and filled it with top quality renters, 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 regional bank that's ready to do a cash-out re-finance. But remember that they'll likely be a seasoning period of a minimum of 12 months before the lending institution is willing to offer you the loan - preferably, by the time you're made with repair work and have found renters, this seasoning duration will be completed.

Now you repeat the process!

If you used a private money lender, they might be prepared to do another deal with you. Or you could utilize another tough money lender. Or you could reinvest your money into a brand-new residential or commercial property.

For as long as whatever goes efficiently with the BRRRR approach, you'll be able to keep buying residential or commercial properties without truly utilizing your own money.

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

High Returns - BRRRR requires extremely little (or no) out-of-pocket cash, so your returns must be sky-high compared to standard genuine estate financial investments.

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

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

High-Interest Loans - If you're using a hard-money lender to BRRRR residential or commercial properties, then you'll likely be paying a high interest rate. The goal is to rehab, rent, and re-finance as quickly as possible, however you'll usually be paying the difficult money loan providers for a minimum of a year approximately.

Seasoning Period - Most banks need a "spices period" before they do a cash-out refinance on a home, which shows that the residential or commercial property's cash-flow is stable. This is usually a minimum of 12 months and in some cases closer to two years.

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

Appraisal Risk - Before you purchase the residential or commercial property, you'll wish to ensure that your ARV estimations are air-tight. There's constantly a danger of the appraisal not coming through like you had actually hoped when re-financing ... that's why getting a bargain is so darn crucial.

When to BRRRR and When Not to BRRRR

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

1. Did you get an exceptional offer?
2. Are you comfy with rehabbing the residential or commercial property?


The first question is essential since a successful BRRRR deal hinges on having actually discovered a lot ... otherwise you could get in trouble when you try to refinance.

And the second question 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 think about rather - here's our guide to wholesaling.

Want to find out more about the BRRRR technique?

Here are a few of our favorite books on the topics ...

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 Just How Much Everything Costs by J Scott
How to Invest in Real Estate: The Ultimate Beginner's Guide to Starting by Brandon Turner
Final Thoughts on the BRRRR Method

The BRRRR approach is a terrific method to buy realty. It allows you to do so without utilizing your own cash and, more significantly, it enables you to recoup your capital so that you can reinvest it into brand-new units.