What is the BRRRR Method? 

BRRRR stands for “Buy, Rehab, Rent, Refinance, Repeat’ and is a recognized approach to investing in real estate. It’s affectionately referred to as the BRRR Method.

The main difference between the BRRR Method and other ways to make money from property is that it focuses on buying a building that’s less than perfect, improving it to a habitable state to rent out, and then taking out finance on the value to purchase another.

From then you rinse, repeat, rinse, repeat, and so on…

The BRRR Method isn’t for everyone. However, for the savvy investor who’s prepared to do a bit of homework, the potential to make money and/or build a property portfolio can be very appealing.

Understanding the 5 BRRR Stages

Each step of the process follows a logical order:

1. Buy: find and purchase a distressed property.
2. Rehab: upgrade the home to a habitable state.
3. Rent: find a tenant for the house.
4. Refinance: cash-out on the equity in the building.
5. Repeat: find another property to purchase.

Stage 1. Buy

Before you even commence your property search, consider how you’re going to finance this initial stage. If you’re fortunate enough to have the liquid assets to do so, then you’ve already jumped the first hurdle. For those who aren’t cash buyers, then you’re going to need to borrow the money.

Because the plan is to buy a house that needs updates—and probably significant ones—it’s very unlikely that a regular home buyer’s mortgage will suffice. This is because most lenders carry out a property appraisal, meaning the building will need to meet minimum standards. A distressed home is unlikely to conform to these. Plus, determining the current value is also something traditional mortgage providers are unwilling to commit to.

Instead, there are two alternative ways to borrow the funds:

• A Home Equity Line of Credit (HELOC).
• A hard money loan.

There are pros and cons to both of these. They do have the potential to be high-risk, so it’s important to take the appropriate professional advice to check if this is right for you.

Once you’ve secured the appropriate finance, then it’s time to start your property search. 

When looking at houses, you should keep what’s known as the after-repair value (ARV) at the forefront of your mind. This is simply the estimated value of the building once the renovation work has been carried out. You can do this by looking at the recent sale prices of properties in the same area. Make sure you only consider those that are:

• Of a comparable size.
• Have the same number of bedrooms and bathrooms.
• Are on a similar plot size.
• Are of a similar age.
• Are in a similar condition.

The approximate AVR will give you an idea of how much you should offer for the home. Most experts say that this shouldn’t be above 70% of the ARV.

Stage 2: Rehab

The second stage of the BRRRR Method is to bring the building up to a habitable state. The exact work will depend on how tired your purchase is. However, all improvements should be done with the following in mind:

• To be safe and pass all necessary building regulation standards.
• Consider energy efficiency, such as windows, power sources, HVAC, appliances, etc.
• Installing modern, conservative updates that won’t become dated in a few years.
• Creating curb appeal (how attractive the property and its surroundings are when viewed from street level).

Stage 3: Rent

Once stage 2 is complete (or just before) it’s time to look for tenants. You’ll also need to determine the monthly rent to charge. Again, look at what similar properties command to ensure your property is bringing you in the maximum while remaining attractive to potential renters.

The aim is for you to end up with a positive monthly cash flow—AKA the net operating income (NOI). For example, you’re paying $700 per month on the original purchase loan but your tenant is paying £1,600. Therefore, your NOI is $1,600 minus $700, leaving a total of $900 per month.

Stage 4: Refinance

Once you’ve secured a tenant, then it’s time to refinance (cash out). This will provide you with the funds to purchase another property to renovate. 

There are various ways to do this, including a DSCR loan (debt-service coverage ratio) or non-QM mortgage (non-qualified). These loans are based on the cash flow that the property brings in, rather than your financial situation. They’re an ideal option for those in certain situations, such as:

• The self-employed or freelancer.
• If you’ve got a complex financial history.
• You’ve reached your borrowing limit for conventional credit.
• You don’t have high liquid capital.
• You don’t wish to divulge your employment situation.

You can also look at more conventional borrowing, although this is often a lengthier process and requires you to jump through more hoops (such as credit score requirement, amount of equity in the property, etc.).

Stage 5: Repeat

Once all the above stages have been successfully completed, you’re ready to do it all again. The BRRRR Method can realistically be continued for as long as you like. Another alternative is to flip a property (to sell it for a profit after the renovations), rather than rent, if you prefer. 

For many people, the BRRRR Method is an effective way to start and build a property portfolio, either for an ongoing income and/or as a retirement fund.