What Is the BRRRR Method Explained (Buy, Rehab, Rent, Refinance, Repeat for Beginners)

BRRRR is an acronym for Buy, Rehab, Rent, Refinance, Repeat (also known as Buy, Renovate, Rent, Refinance, Repeat).

It's a solid business model if you want to be a landlord or if your goal is to quickly turn a hefty profit on your properties.

BRRRR real estate covers many properties, including homes, duplexes, triplexes, and commercial units. Any real estate you can buy, fix up, rent out, and refinance can be a BRRRR property.

For the BRRRR formula to work, you already need to know the basics of renovation strategy. If you've never tried flipping a house for a profit, make sure you understand what it takes to renovate.

The BRRRR investing strategy is essentially buying a property low—doing some minor renovations—renting it out—then using the equity to refinance and purchase another property—then repeating over and over until you have a property empire.

If you follow those four steps every time you go from one investment opportunity to another, you should be able to do the BRRRR method successfully. You’ll need to keep track of a few things to make a success of the BRRRR strategy:

• The length of each stage (how long did it take to find, buy, renovate, and rent out your properties).

• How much did you spend during each step (down payments, repair costs, monthly bills)?

• How much equity you’ve created with every deal?

The major difference between the BRRRR method and others is the focus on distressed properties or properties in areas that need revitalization.

If you can spot the potential in a renovation and aren’t afraid of doing the hard work, there’s a ton of money to be made.

But if you’ve never tried to flip a property, that still leaves the question of how to start the BRRRR method. It all begins with B—buy!

Buy low, sell high. That’s the house-flipping mantra. When buying BRRRR real estate, you’ll want to aim really low. A word of warning—most of the risks can be found at this first stage, so you must get it right.

What’s on the checklist to find a BRRRR property worthy of your hard work? Since the whole point of the BRRRR method is to add value, start with a place that needs repair—a real fixer-upper (or a distressed property as they’re known in the trade).

Finding the balance between the buying price, the cost of the work involved, and the end value of the real estate is critical. Before you jump into the world of BRRRR, let’s learn some of the lingo.

That's the After Repair Value, an estimate of the property's worth after you've done the repairs and renovations. Adding the refurb value is tricky and subjective, but you can get a rough idea from the prices of similar homes in the area with the same level of finish.

A rule of thumb is to spend only 70% of the ARV minus cost of repairs.

The formula is:(ARV x 70%) – Repair Costs = Maximum Bid This is called—quite unsurprisingly—the “70% Rule” in real estate circles. Here’s an example of what it means in practice:

When buying property to make money, it’s essential to leave a margin for error. Following the 70% Rule gives you reassurance that you’ll complete the project and come out with some equity.

You should know:

• How likely it is that you will get a mortgage on the property (B).

• How much roughly the renovation will cost (R).

• The availability and price of other rentals in the area (R).

• What refinancing options you’ll have on the property after refurb (R).

• How much cash you’ll have for the next project (R).

On average, most investors will spend around $10,000–$20,000 to start investing in real estate using the BRRRR strategy, but this number could vary depending on where you live.

If you think you've found the perfect investment but you're having trouble running the numbers, take a look at a BRRRR calculator. You can find these online, and by plugging a few numbers in, you'll see what kind of profit (or loss) you might make.

Remember, a calculator can't tell you exactly how things will go or predict any unforeseen circumstances, so use the numbers as a rough guide.

When you renovate, don't go overboard. That's the top tip. Create a budget, leave room for unforeseen expenses, and keep the bigger goal in mind. Don't start by shopping for marble countertops and shag pile carpeting. At this stage, you want to make sure your property is habitable.

Start by giving your property a full review. Check out:

• Foundation/structure

• Electrical wiring

• Plumbing

• Heating

• Insulation

• Windows

Look for anything that might not be up to code. Every state (even every locality) has its own building codes you’ll need to meet. You’ll find them online. You can check out the FEMA building codes for a federal overview. If your rehab doesn’t meet those standards, it means you’re doing something wrong.

If there’s construction work to be done, get quotes from a few contractors and crunch the numbers. Figure out where you can cut back on cosmetics to make the place habitable. And remember, you’ll be renting it out, so you’re going to be responsible for repairs and maintenance. Don’t scrimp on areas that’ll come back to bite you.

The roof, for example, might be okay when you buy it, but after a few years of wear and tear will become a lot more costly than touching it up now. Once you have any structural or major work out of the way, it’s time for the fun—bring on those marble countertops!

Or—more reasonably—go utilitarian. Maybe marble-effect countertops would look just as nice? Overspending will lower your return on investment. Do some cost-benefit analysis to see how to get back the maximum outlay at this initial stage.

From the beginning, think about how much rent you’re going to charge and plan your final cosmetic work accordingly. Curb appeal matters, sure, but you’re not actually going to live there.

The next stage in the BRRRR investment plan is to figure out your rent. Time for another well-named rule!

How to estimate the rent price

The “1% Rule” is popular with BRRRR method veterans, a simple piece of math to estimate how much you should charge per month. This should be at least the amount you pay for the mortgage (if you have one).Otherwise, you certainly won’t break even.

Time for more BRRRR method examples: Say you’ve spent $250,000 buying and renovating your BRRRR property. $250,000 x 1% = $2,500. You'll need to charge at least $2,500 a month to cover your expenses.

It's a rough estimate because it doesn't consider other operating costs (like a rental manager) or how much other rental units in the area make in comparison.

Before buying, be sure to know the typical rental rates in the area. If they’re far less than 1% of your purchase price, then buying and renting a property in that neighbourhood makes little sense.

Finding Renters

After that, it’s time to find a suitable rental candidate. Don’t just go sticking flyers up on telephone poles, though. You need to be more discerning than that. You’re a landlord now, after all.

Set some requirements, like income, age, employment history, and credit score. You can ban pets and smokers, too. Having rental criteria will help you find the best tenant. You'll hopefully be working with this person for a while to come, so get it right.

After you've got a few applications, narrow down your search. Look into the rental history of your candidates and run a credit check because a strong history with solid references can save a lot of headaches later.

Remember, a stable rental history on your property will be important when it's time to refinance, so take the time to get the right tenant.

Since you'll soon be busy finding and flipping other BRRRR properties, it's even worth hiring a rental manager as your tenant's point of contact. Just be sure to factor this into your ongoing costs.

Before you start over again, there's one last step to the BRRRR method—the BRRRR refinance. This can be tricky, so let's get this right.

First, you built up equity in your property and then found a stable tenant. That's going to look great to whatever lender you approach for refinancing your property.

They'll also want to see your credit report, the cash flow on the property, and an appraisal. Every lender will have their criteria, but so will you for taking their money.

First, only take a BRRRR cash-out refinance. That’s when your current mortgage is replaced with a new one that taps into the equity you’ve built up in the property. You’ll have a higher loan amount on the new mortgage and get the difference in cash.

Check out your mortgage refinancing options before you commit. You can review some of the best rates through Credible’s comparison tool.

Another potential pitfall is the requirement for an appraisal. This is one of the less well-known BRRRR method risks. And in some ways, you have no control over it. The rehab might have gone great, and your property could be the best on the block, but the value might still have fallen in a market slump.

If that’s the case, consider holding onto the property a little longer before trying to refinance. Become a fantastic, attentive landlord, sketch out plans for the next five years, and go for it when the market picks up again!

The last part of our BRRRR strategy step-by-step guide is simple. Do it all over again. After the first go-round, you'll be able to answer a simple question: "Is the BRRRR method worth it?" It can be a steep learning curve, but take everything you've learned and apply it to your next diamond in the rough. You've just got to find it first.

Finding BRRRR financing isn’t as easy as just buying a regular home. Some specific loan types, like the FHA 203k, are made for people buying fixer-uppers and renovating them.

Unfortunately, you cannot use a 203k loan on an investment property. It has to be owner-occupied, not made for renting. For BRRRR loans, you can look to traditional banks, mortgage providers, and dedicated BRRRR lenders.

Investors will need a strong credit score (usually above 700) to qualify for financing through traditional methods like banks or mortgage brokers.

Luckily, many lenders now offer loans geared toward BRRRR investors looking for fast returns. These loans require smaller down payments than traditional bank mortgages, meaning the entry barrier is lower.

They also allow borrowers to make monthly interest-only payments. Though lending institutions often prefer buyers with high credit scores, lenders out there will give mortgages to people with lower scores to finance a fixer-upper. You’ll need to speak directly with lenders to understand your options for financing your BRRRR investment.

Be aware that BRRRR lenders might offer loans that have higher rates, but equally that traditional lenders will most likely base any loans on the purchase price. You might make use of a home equity line of credit (HELOC) to finance your BRRRR purchase, but that puts the equity of your current property at high risk.

Real estate investors talk a lot about flipping their way to millions. Not as many consider the BRRRR strategy, so let’s take a sec to compare these two approaches.

The initial aim of both is to find distressed properties with potential and buy them up cheaply. And both methods entail some renovation work to add value to a fixer-upper. Now comes the split in direction.

House flippers are looking to sell a renovation project ASAP, take the profit, and plod it straight back into their next venture. BRRRR method followers don’t sell up. They find a renter, build more equity in the property, and use that to fund their next project.

When you compare the BRRRR method vs. flipping, it takes a lot longer to complete a strategy cycle, and it can cost more in the short term. That’s okay because your eyes are on that sweet rental prize that keeps the cash flow coming long after house flippers burn through theirs.