The BRRRR method focuses on investing in properties that need rehabilitation and refinancing for a profit. Understanding what the BRRRR method is and if it’s worth it is important for investors that seek to expand their portfolio.
What Is the BRRRR Method?
The BRRRR method stands for buy, rehab, rent, refinance, repeat. It is a cyclical way to earn passive income and works as follows:
Ideally, you will purchase a home that is in need of repair so you can buy the property at a low price.
Next, the home needs to be repaired and brought up to code to increase the property’s value.
Once the property is refurbished, you find tenants to lease the property.
With a cash-out refinance, you can access your equity by taking out a larger mortgage, thus borrowing more than you owe and using that extra to buy and refurbish another property.
Finally, repeat the process using your cash-out-refinance funds to rent and refinance other properties.
What Are the Pros and Cons?
Ultimately, the goal is to garner rent that is more than you owe in mortgages. This method has the potential to become a consistent method of passive income. The ROI should ideally be high and can become even higher if the investor owns the property.
However, going over budget can be easy due to unexpected costs during the rehab process. Refurbishing a home is a large project that can end up taking up more time and money than you’re willing to give. In addition, if investors end up rehabilitating the property successfully, they may be in a rush to put a tenant in the property, which is unwise. It can be risky to rely on unchecked tenants as it is supposed to become your primary source of income.
Is It Right for You?
While this method can become very lucrative, it is not for those who don’t know what it takes to rehab a home, and you shouldn’t rush into it. However, you may see success if you plan your house flipping carefully, inspect the homes with a close eye, and thoroughly manage your budget. Otherwise, this method is great for beginners and seasoned investors alike. Like with any investment, it takes careful goal planning and forethought.
Now that you understand the BRRRR method and know whether it’s right for you, you’re better equipped to start expanding your portfolio. If you’re looking for properties or need someone to help you manage your refurbished rentals, contact a residential property management company today to make your passive income a little more active.