Have you ever wondered how “buy and hold” real estate investors grow their rental portfolio so quickly?
Or… how they are able to continue purchasing more deals?
Well, I definitely have!!
Reason being, I generally see investors run into two problems consistently…
1. Finding good deals (where the numbers actually make sense)
2. Coming up with the money to purchase those deals
Assuming you already have number one figured out, number two is where most people get stuck because they get to a point where they run out of their own money.
Running out of personal funds leaves the investor needing to either raise money from investors, wait until they have accumulated additional savings, or pass on the deal.
Whatever the case may be, there needs to be a better way to seize the deals rather than letting them pass by, right? – Yes, definitely!
Well, there is good news for the savvy investor… and it’s called, “The BRRRR Strategy.” 🙂
The B.R.R.R.R. Strategy
The BRRRR strategy is a clever acronym founded by the wonderful folks over at Bigger Pockets that stands for the following:
Buy, Rehab, Rent, Refinance, and Repeat.
The concept has been around for a while, however, David Greene and the folks at Bigger Pockets have really simplified the process and made it easier to comprehend and follow.
Lets take a deeper look at the strategy…
Purchase a fixer (i.e. a property that requires some work – generally needing a fair amount of renovations). Since this property requires all this work, you are able to buy the property well under market.
You fix the property. This may include upgrading the major alliances, fixing the roof, foundation, painting, cleaning, adding a bedroom, adding a bathroom, etc. The idea is to choose strategic upgrades that make the home more valuable while also preparing the home for a quality tenant.
Now that the property has been renovated, it’s time to rent it out. And, because you did such a good job cleaning up the property, you can attract quality tenants that are happy to pay the market rent.
To recap… you bought the property under market (at a discount because the home needed so much work), then you fixed it up making the home worth substantially more money than what you bought it for… Now, its time to refinance and attempt to take ALL of your cash back out of the deal.
Let’s say you purchase a property in the Midwest for $85k. This is a single family home, 3 bedrooms, 2 bathrooms and the home required $30k in repairs. After all the repairs, you have $115k into the home.
But… since you upgraded the home and completed all the renovations, the “after repair value – ARV” of the property is now hovering at $155k.
With an appraisal of $155k, the lender will allow you to refinance the property up to 75% of the homes value leaving you with a loan amount of $116,250.
WOW!! This means that with the scenario (which is obliviously a perfect one LOL), you could take ALL of your money back out! This frees up your cash to roll into the next deal 🙂
Can you see why this is so powerful?
The next step is to repeat the process and use the cash that you were able to extract towards the next project. Essentially, you are attempting to “recycle” the initial funds that you are investing into future deals. This allow you to scale your portfolio without always needing to find new capital.
So, how do you feel about this strategy? Do you think it could help you grow your portfolio faster? – Seems like a very powerful Strategy to me!
Benefits of the BRRRR Strategy
Here are a few of the key benefits of this strategy.
- Grow your real estate portfolio faster
- Build your net worth faster (i.e. gaining equity through strategic renovations).
- Increase passive cash flow
- Increase your return on investment (Having less money in a good cash flowing deal will increase your ROI).
Wrapping things up
The BRRRR strategy, if done properly, can be a very powerful tool to help you explode your net worth and real estate portfolio. With that said, debt (i.e. mortgages) must be used with caution, and you must know your numbers very well before attempting to deploy this strategy. You must understand how to calculate the rehab costs, the after repair value, mortgage qualifications, etc.
Would you like to know more about this strategy?
If so, check out the resources below:
Bigger Pockets Podcast: Episode 327
Hope you find this information useful!
All the best!
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