Renovation shows on HGTV are really popular right now. A home owner is living in an outdated house, and they want something more modern. In swoops a team of home renovators who fix up the home and it’s perfect for the family’s needs!
BRRRR is a little like that. BRRRR stands for “buy, rehab, rent, refinance, repeat.” A real estate investor buys a property that is outdated and undesirable, and then fixes it up! Now, the investor has a desirable property. While he or she could sell it and turn a profit, they rent it instead, creating a stream of passive income. If the investor needed a loan to fix up the property, the revenue from the rent pays for that, and once that is paid off, it’s a steady stream of income.
BRRRR is a cyclical process. First, buying a home and fixing it up (making it more valuable). Next, finding a tenant (which should be easy if the renovations went well). Then, a loan to cover costs (if you don’t have enough cash to cover it). Then, finally, a stream of income from the tenants, and you’re off to find a new property to revitalize.
Here are some things to know while considering BRRRR:
- Consider getting a short term loan to purchase the property and fix it up, but then refinance the property at the bank to build equity and pay back the loan
- Banks typically only refinance up to 75%, so make sure that you are fixing the property up to be worth more than what you paid for it
BRRRR can be a confusing topic, so we’ll jump into more details in the next few blog posts!
Check out this article that inspired this post to learn more: https://www.biggerpockets.com/blog/brrrr-pros-and-cons