Recently, I have heard a lot of chatter about the BRRRR method. This is a real estate investment strategy used by people who purchase properties in need of some love, fix them up, rent them out and refinance to do it all over again. The BRRRR stands for Buy, Rehab, Rent, Refinance and Repeat!
The main distinction between purchasing a standard investment property and the BRRRR strategy is that the latter’s focal point is on investing in weathered properties and refinancing the renovated home to purchase another one…rinse and repeat! If you are considering using this method, have a read to decide if this process is one for you.
If you follow these steps, the BRRRR method will allow you to earn a passive income and create a cycle for purchasing rental properties.
BRRRR Steps
BUY: The investment property that you chose should be one that needs some work to get it ready to rent to a tenant. This will allow you to find a property with better value (since so many people are looking for turnkey homes). In a nutshell, the worse the condition of the home, the cheaper it will most likely be!
REHAB: This is a huge part of the process. It is about taking that distressed property you purchased and renovating to make it not only structurally sound but also aesthetically pleasing and ready to rent out!
RENT: At this stage, it is a good idea to speak to a real estate agent to discuss what price you will rent out the property for and allow the rental agent to prepare the home listing, find a qualified tenant and get that lease signed!
REFINANCE: At this point, it is time to turn your equity into cash. You can do this by taking out a larger mortgage than you currently owe and using these funds to purchase another property and do it all over again!
REPEAT: The funds you gain from the refinancing will allow you to go back to the buying process and BRRRR all over again!
Learn more about the financial side of this strategy by reading: Can I Use Rental Income to Qualify for a Mortgage?
BRRRR Tips & Tricks
Getting involved in the BRRRR method is, of course, a risk. Before taking the plunge, take some time to read and digest these tips and tricks:
BUYING TIPS & TRICKS
- Shop around for your mortgage, as buying a home with the purpose of flipping it can prove hard to get a mortgage. Speak to private lenders, consider a home equity line of credit and don’t throw in the towel. Do your research and find out the best option for you.
- Determine the ARV (after repair value) of the property for sale. Speak to your real estate agent about comparables in the area and determine what the property would sell for after renovations. As a rule of thumb, do not ever offer more than 70% of the property’s ARV. If a the AVR is $1,000,000, do not offer more than $700,000.
REHAB TIPS & TRICKS
- Safety, safety, safety! The first renovations that you will want to tackle are to make sure the home is up to code and safe to live in.
- Identify improvements that will bring the most value to your new purchase. Check out my blog titled “What Value Can a Kitchen and Other Home Renovations Bring to Your Home“.
You can also check out these home renovation blogs next:
- Everson Village Toronto Home Reno: How We Added $85k in Market Value
- Should I Paint My Home Before Listing it For Sale?
- Toronto Renovation Rebate Programs
RENTING TIPS & TRICKS
- Ensure you rent out your renovated property before you apply for refinancing!
- Use a real estate agent to qualify your potential tenants
- Check out my blog on “The Rental Application Process – Tenant Checklist” for a better idea of what is needed from a tenant
- Have your real estate agent determine what a fair price for renters is and one that will result in positive cash flow.
REFINANCING TIPS & TRICKS
- The cash-out refinancing allows you to turn the equity in your property to money and use that to purchase another property. It is key that you find a lender that offers a “cash-out” refinancing option and that you meet the requirements to get the loan.
- Call our dedicated mortgage broker Arlene Karram to discuss your financing options.
REPEATING TIPS & TRICKS
- The biggest pointer for repeating this process is to ensure you learn from your mistakes. Take notes throughout the process and do not repeat your mistakes!
If you are interested in finding a property that would be perfect for the BRRRR method, give me a call or shoot me a text message and I will work with you to find an investment property that works for you!
