BRRRR Strategy – Fastest Way To Build Wealth in 2022

While The BRRRR (buy, rehab, rent, refinance, repeat) Strategy can be a winning rainmaker for real estate investors – there are BRRRR risks you will want to consider.

Real estate investors start with the BRRRR investment strategy by finding good deals, buying, rehabbing, and flipping a distressed property.

The following process is renting it out to a tenant and collecting rental income to “season” the property.

After that, apply to cash-out refinancing the investment property.

With the cash pulled out, you can continue to purchase other rental properties for investment.

And the cycle repeats perpetually.

What is the difference between traditional investment strategies and the BRRRR method?

A key difference for many BRRRR risks is flipping distressed properties before refinancing these to fund new real estate purchases.

The Strategy is risky and ill-advised because it can result in numerous short sales or foreclosures that are unlikely to be profitable.

In the past few years, we have seen many instances where investors have taken advantage of the current market conditions by purchasing properties with negative equity and then selling them at a profit.

The problem is that these transactions are not always successful because they require a lot of time and effort from the investor.

When you purchase a distressed property for less than what it’s worth, you will be required to rehab the house.

You will still be required to make up for the difference in time and costs.

With something as significant as buying and selling a property, getting from start to finish always takes a bit of time.

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Location, location, location

One risk that does not usually get considered when discussing the BRRRR Strategy is purchasing a property in a poor or wrong location.

People who buy homes want to live in a secure and pleasing neighborhood.

Newbie investors often forget to look closely at where they buy to rent out a property before purchasing.

Problem With Low Low Property Prices

Investors often only search for low prices, and they wish to get the properties as soon as possible.

Many people don’t realize that location is why property prices are so low.

One of the reasons is that people do not want to live there for a specific reason.

Even when your property’s rehab is complete, it will have problems when it comes to being rented.

Finding tenants willing to pay the amount you want to charge for rent will be difficult.

You may be astonished at how frustrating your “good deal” turns out.

Getting cheap properties is essential, but remember that the location of those properties is detrimental to your overall success.

If you’re trying to sell a property at the wrong price, it will be complicated even if you want to get rid of it.

Should You Go Over Budget on Your Investment Property?

While some investors look for “fire sale” properties, others may spend too much on a home even before starting rehab.

They may start with a budget but get sidetracked when “shopping” or getting a home they believe will be an exceptional investment.

However, the price is beyond the current budget, but they struggle to rationalize the purchase.

Many are newbie investors who are too inexperienced to realize that going over budget is just a bad idea.

Sometimes they are simply impatient.

The most important is to remain aware – you make your money when you buy, not when you sell.

Inexperienced investors expect cash flow passive income immediately or capital appreciation to cover an over-priced investment property.

Let’s look at the math.

Say if you make $2,000 a year in cash flow but you overpaid by $10,000,

You would be exactly where you are five years later as if you purchased the property today.

Do your research to know your estimates accurately and confidently.

Bidding War

There is no home that you MUST have at whatever price – unless, of course, it is for sentimental reasons.

No matter how small, bidding wars can inflate the property price to a level where turning a profit can be impossible.

If you have a competitive side, you must avoid bidding wars at all costs – remember you are out to make money from your investment, the bigger WIN.

How you view your investment property will determine your profitability.

If you consider your investment properties as your dream home, you will end up spending more than you should.

Know the home’s present value and your budget and know.

Do not pay over market value, and do not “over-renovate” investment properties.

There are alternative properties out there if the first of several that you find are overpriced.

Remember that there is no harm in offering less for a home than the asking price–it is all a numbers game.

After all, there’s a reason people say that “location, location, location” is the key to success in real estate.

Whenever you hear about someone else trying to revitalize an area, it’s best to investigate this for yourself.

However, even if new businesses are popping up, it is crucial to perform your due diligence to ensure that the location will turn around.

Remember, being the first to invest in an area is not always the best thing.

How To Cash-Out Refinance?

Refinancing a house is another attractive opportunity to raise your assets’ portfolio without actually investing extra hard-earned cash from your pockets.

Cash-Out Refinance allows you to reap the rewards of owning the property you’ve worked hard to repair and bring up the ARV.

Once you’ve completed the rehab and rented out the property, you’re ready to move on to the next step to refinance it.

The BRRRR process works indefinitely as long as you keep the property occupied.

Carry out a cost-benefit analysis for each step of the renovations process if you want to run a cost-effective project.

Before a real estate investor conducts the cash-out refinance in the BRRRR method, which means you convert your equity (assets) into dollars.

If you take out bigger mortgages on your rental properties, you borrow money from the banks, giving you access to your equity.

An investor can use the money from this refinance transaction to reinvest in different properties.

Once you have a cash-out refinance deal, you can invest that cash into newer properties that ideally have a higher ARV and be easier to lease out.

The left-over funds can be utilized for other purchases, such as (but not limited to) additional rental properties.

For the right investor, the BRRRR is an excellent investment method.

However, there are risks associated with the BRRRR real estate investment strategy.

The BRRRR method is an effective way to invest in real property without using your own money.

So where do you find the money?

You can use the capital from refinancing your house to invest in new properties.

Let’s examine the BRRRR risks before attempting the BRRRR method of real estate investments.

When you identify the potential risks, you can reduce them and maximize your profits with this dynamic method.

While this Strategy may sound straightforward enough to work, some complications may occur.

These risks may occur for those fresh to BRRRR who aren’t familiar with the possible dangers. However, these risks can still affect professional investors.

Understanding and knowing the biggest risks related to the BRRRR Strategy is essential.

10 Risks of the BRRRR Strategy

The BRRRR Strategy (Buy-Rehab-Rent-Refinance-Repeat) can be a fantastic way to help you reach your dreams of investing profitably.

Typically, you acquire these properties, remodel them, get them to lease ready for renters.

Next, you set a property management system in place.

After that, you apply for refinancing after you’ve held the house for six months.

Once you’ve taken the initial step, you can repeat the process over and over again.

While this is a great strategy, there are many details to consider before going all out, especially if you’re doing it in the USA.

The BRRRR method refers to buying, renovating, renting out, refinancing, and repeating.

A critical difference between conventional investment property strategies and the BRRRR system is the focus on flipping distressed assets before refinancing them to finance additional real estate acquisitions.

As an investor conducting the cash-in refinance step in the BRRR method, you essentially convert equity into dollars.

Everyone knows that real estate investing can be a powerful way to grow wealth and achieve true financial freedom.

Each person’s journey is unique, realizing the first steps can be challenging.

While this is an ideal investment strategy for the right investor, it comes with some risks.

Before we go into the details of the BRRRR method, let’s look at the associated risks.

How to evaluate the 9 BRRRR Risks and Rewards

1. Renovation Time

2. Renovation Cost

3. Renovation Management

4. Appraisal

5. Time to Rent

6. Rent Amount

7. Total Cost of the Renovation

8. Filling Those Vacancies with the Right Tenants

9. Time to refinance

10. Limits to the refinancing amount

Renovation Time

Usually, you will hire contractors to take care of the repairs and improvements required on the property.

The plan is to turn the house into the best shape possible to rent the home.

Remember to be conservative when you run your numbers for the facelift.

Aside from Mother Nature causing the rehabilitation more complicated on winter days or during inclement weather, most investors have had a bad experience with contractors.

If you’ve managed some home improvement or repairs before, you will perhaps have experienced the renovation period, taking far longer than foreseen.

When contractors submit a bid, they will name a price and timeline for the project before they close the deal.

Snowstorms during the winter months may cause delays in construction projects and cause delay.

There could be break-ins when the contractor is not working on the project because the property is vacant.

While most contractors have your best interests in mind, not all are cut from the same cloth.

Hiring and firing contractors that don’t perform means losing money time and starting afresh with a new contractor.

While this does not happen regularly, you will want to be aware of these types of contractors.

Although you can’t do anything about the weather, you can be careful when choosing a contractor to undertake the work for you.

Using an experienced in-house contractor is better than working with new contractors that you have no experience handling.

If you’ve ever hired a handy person for a larger-ticket repair or improvement project, at some point, the project has taken longer than expected.

Sometimes, property renovations get put on hold because of winter storms.

It’s impossible to replace roofs or siding or do the outdoor painting when snow is swirling or ice is forming.

Renovation Cost

Time is money.

When the rehab goes off schedule, delays and other expenses escalate and quickly add up.

If you start rehabbing a property today, the cost of the job is $15,000

If something unexpected comes up, say repairing a foundation or replacing broken glass due to vandalism, these repair costs can quickly increase.

Some items can set back your project in terms of both time and cost for projects involving a new contractor.

An unexpected expense can often be one of the most stressful things for investors who own rental properties.

When expenditure exceeds the budget, you have a loss.

You might need to spend more money than you want.

One of the most annoying things for any investor who owns real property is an unexpected significant expense messing up their expected rehab costs.

When it comes to real estate investments, big expenses can determine whether they’re profitable or not.

Anything unknown before buying a property could turn out to be a major or unexpected repair expense.

Rehab Management

One disadvantage to a BRRRR is that you need to spend time rehabilitating; the time is taken to renovate your property.

The rehab process takes a lot of planning, time, and site work.

While you may have some DIY skills, getting the property in the best shape possible to make it habitable will take a team.

Would you want to spend your weekends rehabbing a distressed property?

Or would it make better dollars and sense to hire someone to work for you?

Unless you are a contractor, you can’t handle it all by yourself.

A general contractor also needs subcontractors to do the work.

Some rehabs can last up to about nine to fifteen months or more.

Progress might be slower than expected, and it’s not something that you can do in one month or two.

You can aim to expand your business by hiring contractors to take care of the repairs and improvements as needed.

That way, you can handle multiple projects in one go.

As a new investor looking to hire a contractor, why do you think they will be a good fit?

The most common way contractors get hired by word of mouth from friends or people who’ve used them before.

For a newbie investor, finding a good contractor isn’t futile.

But it’s unlikely to happen on the first few projects.

The problem is that so many contractors are out there claiming to be the best in the business.

How do you know which contractor will be the best fit?

For rehab management, the most vital thing is to ensure that one understands what needs doing and why and how much it will cost.

Another critical aspect is ensuring that the contractors have a good approach towards their work because this will help you achieve better results.

Find out how Noble Sky International source, interview and hire a reliable contractor for your projects.

A downside to a BRRRR is that you need to go through rehab.

While you generally find out that contractors are the hardest people to work with within the construction industry, getting a decent and reliable team is equally challenging.

As a new investor, do you think a contractor would work with a seasoned investor who knows the process inside out or work with a new investor who only has a deal or two a year?

Aside from asking all the questions, most newbies have a tough time managing the entire process without relevant experience.

Property Appraisal

When you improve a BRRRR property, it makes it more valuable.

A key factor to consider is the After Repair Value (ARV), which means what the property will be worth after renovations.

The ARV improves the property and causes it to appreciate or increase in value.

An ARV is commonly used in a short-term real estate investment strategy (house flipping).

Flippers are investors who buy a distressed property, make repairs and renovations, then sell it for a profit.

Next comes the Appraisal, which is the biggest challenge when doing this BRRR Strategy.

What happens if your appraisal doesn’t return what you wanted?

What if the market crashes, and you can’t pull out because the appraised value is lesser than your investment in a deal?

If your appraised property value is lower than what you expect, your profit margin would be affected.

With the BRRRR Strategy, you have Cash Flow as long as you can rent the property out.

One factor in deciding whether to buy or rent is what the property will sell for when you’re ready to move out.

The purpose of making improvements to the property is to increase its value.

If you did not use creative financing, you should assume that you did not promise investors a profit.

Time for Rent

For BRRRR properties, the time taken to rent out depends on whether you plan to rent it and then refinance it.

For investors planning to rent property, a delay in rehab will prolong the time before your tenants move in.

You can get a property management company to come and rent out the property for you.

Timing is crucial because refinancing depends on the property’s cash flow, meaning that you need tenants living there.

If you don’t experience a rehab delay, you’ll get your money back sooner from the project.

If you have the funds, then the time to rent isn’t as critical.

It would be best to consider leasing a BBRRR property because it is crucial.

After all, you will lose revenue if you can’t rent your home.

Many property management companies can rent a property out when it’s all done within two weeks.

You can’t rent out the property until you complete the rehab.

For BRRRR properties, if you plan to rent it out and then refinance it, a rehab delay of any sort will prolong the time before you can place tenants.

Timing is crucial, as refinancing is dependent on having tenants for cash flow.

That means the more extended the delay, the longer before you start getting your money back out of the project.

If you have the financial means to handle a delay, then the time to rent isn’t as critical.

But it must be considered for a BRRRR property.

With time being a crucial factor, keep in mind the rental you will collect for the property.

Rent Amount

You should set the correct rent amount for your investment property should be done BEFORE you purchase.

Before you decide to go ahead with BRRRR, you should calculate the expected rent amount.

Cash flow is a big part of the equation – the most critical factor.

The rent you receive determines if you can afford to invest in your business.

If you can’t count on cash flow, you need to rethink your Strategy.

It matters because you need to know whether the property will generate positive income.

Your decisions will depend upon why you’re doing a BRRRR; however, the idea is to rent out the property rather than sell it as a flip.

Before you determine the rental amount, you need to know the market rate for other comparable properties in the neighborhood.

Know what the rental charges are to get an idea of how much you will be able to charge.

While there will always be a temptation to charge a bit more or even the maximum rental possible, the question to ask is: would a tenant pay these prices for the living conditions you provide?

Generally, tenants are unwilling to pay more than what other locations of similar quality homes charge.

If you ask for too high, you will not get tenants who want to move in and live in your home.

Many property management companies may tell you that you can rent out a home for $1000.

If the property is vacant after three months, what happens next?

We recommend renting the property for the going rate and getting a tenant in quickly to generate cash flow.

A delay in renting out your property will be costly for you.

Does it make sense to push the rent, say $100 more a month, and leave it vacant for a few months?

Would you lose $1500 in a month’s rent solely for an extra $100 means a loss of income for the months the property remains vacant?

You may take a long time to make up that $1500 lost rental income.

Get a tenant in first.

Ensure that your Tenancy Agreement has a Step Up Rent Clause that includes predetermined increases in rental payments that catch up to market rates agreed upon at lease signing.

The step-up allows landlords to anticipate rising costs, effects of inflation, and market rates that could occur in the future.

Having that provision in your lease agreement ensures that you continually optimize your rental income.

Vacant properties are often at risk for break-ins.

The BRRRR strategy is excellent, but it’s not for everybody.

It is a strategy with some risk involved, so you should consider it carefully before investing.

If you’re looking for cash flow, buying a fully renovated property with a tenant already in place would be the best option.

You don’t have to deal with any renovation risks or delays.

The rental amount matters for the BRRRR Strategy.

Your initial analysis should include the anticipated rent amount once tenants are in place, so you’ll know if the property is positive cash flow.

If you can’t expect cash flow, you will need to reconsider if this Strategy works for you.

The idea of a BRRRR is to refinance the property after rehab.

You can flip the property for cash if you need the money.

Your decisions depend on why you are doing a BRRRR.

Remember, the idea is to rent the property rather than sell it as a flip.

Cash flow is a big part of that equation.

Total Cost of the Renovation

The average single-family home rehab cost can be $50,000–$100,000.

It all depends on the size of the house in (sq ft).

Rehab works cost per square foot ranges between $60–$150.

The works include new walls, roof, structural improvements, a new roof, plumbing, bathroom fittings, HVAC (heating, venting, air conditioning system), and kitchen cabinets.

It’s difficult to determine the total cost of the renovation before carrying out the works.

For repairs, sometimes there are unexpected hidden costs.

Sometimes, the contractor discovers other repaired things that need replacing, and these issues need immediate resolution, adding to the repair cost.

There are several factors to consider when calculating construction costs.

One factor is the distance between the site and the nearest city center. The farther the property is from the city center, the higher the transportation costs.

To avoid risks is to anticipate problems before they occur.

It is a good practice to cushion your budget by anticipating unexpected costs.

It gives you peace of mind knowing that you’ve got a safety net if things go wrong.

Filling Those Vacancies with the Right Tenants

It is crucial to get the right tenant for your rental business vs. any tenant!

Ensure that you have good renters is dependent on several factors.

You need to have a property in a good area, priced competitively to market the place to find tenants.

While many newbie investors think they can do so independently, getting a property management company like Noble Sky International to help free your time.

Hence, you do other things that generate more income.

With Noble Sky, we have a team of US professionals on the ground who are there to help you with every aspect of managing your property.

We take care of everything from A-Z, including maintenance and upkeep, getting tenants in, and evicting them when necessary.

These are some of the most significant risks associated with BRRRR.

It becomes easier for you to plan when you understand them and how they might affect your BRRRR process.

Filling Those Vacancies with the Right Tenants

Getting the right tenant vs. any tenant is detrimental to your rental business.

Ensuring that you have good renters is dependent on several factors.

You need to have a property in a good area, priced competitively to market the place to find tenants.

While many newbie investors think they can do so independently, getting a property management company like Noble Sky International to help free your time.

Hence, you do other things that generate more income.

With Noble Sky, we have a team of US professionals on the ground who are there to help you with every aspect of managing your property.

We take care of everything from A-Z, including maintenance and upkeep, getting tenants in, and evicting them when necessary.

These are some of the most significant risks associated with BRRRR.

It becomes easier for you to plan when you understand them and how they might affect your BRRRR process.

Time to Refinance

How soon can you refinance?

If you’re hoping to take cash out, you’ll typically have to wait six months before refinancing your property.

After this six-month seasoning phase, you can take the equity out of your property.

Let’s say you want to invest $100,000 in a BRRRR investment, and you won’t be able to reinvest that amount for at least six to 12 months.

However, with traditional rental property investing with that same $100,000, you could buy five $100,000 properties with 20% down.

Have you worked out the cost per property to include the cost of renovations?

What about holding costs if there’s a delay to rent out?

Getting the correct deal analysis will ensure you get good cash returns on your original capital with the rental phase.

Which rental portfolio will have more cash flow?

The investor with five properties or the one with two?

Which investing strategy pros have a better potential for returns so you can buy more and scale up your real estate business?

Limits To The Refinancing Amount

What makes a BRR investment deal so powerful is the fact that you can pull your money out and reinvest it.

If you want to pull all of your money out of a BRRRR, you’re going to have to wait at least six months before you can get any cash back from the lender.

That means that if you plan to pull all of your cash out of a BRRR, you’ll probably end up leaving $5,000 to 10,000 in the deal.

It’s not bad, but you still need to wait six months for the lender to give you the cashback.

You’ll need to save 20%–25% down payment with a traditional rental property.

If there are ways to spend less and make even more money, do it.

And if there are ways to spend even less money and make even MORE money, do it.

Then invest that extra money into traditional rental properties.

Is BRRRR Worth the Risks?

You can see from the above example that BRRRR has some risks associated with it, but these risks are not too bad.

We believe it is still a potent tool for real estate investing, and we use it too!

Instead of being afraid of the challenges associated with this Strategy, learn how to manage them.

Investors will learn how to mitigate those issues and make the most out of one of the best investment strategies around.

Who shouldn’t use the BRRRR Strategy?

You shouldn’t use the BRRRR Strategy unless you want to achieve financial independence as quickly as possible by investing in cash-flow generating rental properties.

The BRRRR strategy has been around since the early 1980s, popularized by Robert Kiyosaki in his book Rich Dad Poor Dad.

It’s a simple concept used in any real estate market, especially in the United States.

Do you know which Strategy is the best one?

It isn’t house hacking (although house hacking is a subset of this group).

If you guessed ‘old-fashioned rental property investing, that’s correct!

Instead, it might be better to put your time, effort, money, and energy into traditional rental property investing.

BRRRR Guide To US Real Estate Investing

With the BRRRR Strategy, you can buy properties faster, add value through rehabs, build cash flow by leasing, and refinance into better financial positions.

Best of all, when you come across something that works financially to help you put money in your pocket, you will want to keep doing it over and over again.

Over time, you can create a real estate portfolio that provides you with the passive income stream for the best retirement lifestyle that you want for yourself.

Remember, retirement doesn’t have to happen at 65, 55, or 40.

With a good strategy in place, you can even retire at 30!

Who should use the BRRRR Strategy?

The BRRRR Strategy is ideal for people who want to borrow after the seasoning period for lower interest rates.

Remember that you need to put in the time for your rehab projects, vet tenant applications, and allow for seasoning first before you can cash out a refinance.

If you can afford patience when investing, then give the BRR method a go.

Evaluating BRRRR risks and alternative solutions

Now that you understand the level of risk for your real estate business, you can determine if BRRRR risk outweighs the benefits for you.

Consider looking into alternative investment strategies.

For example, you could consider co-investing with other investors.

Real estate investors use the BRRRR Strategy to pool their money together.

All shareholders invest less money and effort, as this works well for all to reap and enjoy the benefits of investing in US real estate.

Another strategy discussed above is buying a ready-to-live-in-home for traditional rental income or Airbnb income.

You can get a property manager to check the turnkey property, complete minor repairs, and furnish it in a few weeks.

A property management company like Noble Sky International can help find tenants occupying the rental property.

The property manager will then negotiate a lease with the tenant and collect rent from them on your behalf.

You should hire a US project management company.

That way, you can practically start the cash flow process from Day One.

Understanding the critical risks of the BRRR method will help you determine if this is the right strategy for you.

Don’t worry if you decide that the BRRRR risks are not for you.

There are plenty of other real estate investment options out there.

We invite you to Sign-up for Noble Sky International’s webinar.

We will show you how to use our All-in-one solution to grow your portfolio in the US using the BRRRR Strategy.

Since 2014, Noble Sky International has helped foreign investors to set up business entities in the US to acquire real estate, especially single-family houses.

We do this for the intrepid investor by providing our expertise and on-the-ground knowledge to you.

At Noble Sky, we have a dedicated team that analyzes deals accurately before recommending our property analysis to our clients.

Get your free sample of the Property Analysis Report worth $97.

All you need to do is let us have your best email address to send you the PDF.

We provide this service to investors who want to invest in real estate.

We have a dedicated team that analyzes deals accurately before recommending them to our clients.

You will be pleased to know that we have a Team US with project managers engaged daily with our in-house contractors to expedite work on the ground.

Currently, our operations are in Florida and Texas as we leave a bigger footprint in more cities stateside.

We offer both short-term and long-term rentals, Airbnb, and contracting services.

We offer 3 More incredible lessons you will learn:

• How you can Flip these properties for a minimum of 30% returns, every single time, without ever having to touch the properties yourself,

• The legal and straightforward way to set yourself up in the US, without ever having to travel to the US, to meet with lawyers, bankers, etc.,

• How you can invest with a minimum capital of $20,000, and yet experience immediate 2-3 digits % growth in your equity,

• BONUS: How you can create Passive Monthly Income to the tune of 4-5 figures $$ a month from AirBnbs, without having to lift a finger to manage bookings and maintain the properties!

Now, if these sound like the very kind of information you have been looking for in a Real Estate Investing Workshop, then you’re in luck!

I want to reach my financial wealth goals increase my income over time.

 

Sign Me Up! I Want Financial Freedom Through The BRRRR Strategy.