As a beginner investor looking to break into the world of real estate investment, the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy can be a lucrative way to jumpstart your portfolio and create a steady stream of passive income. This five-step process offers you the opportunity to find properties at a discounted price, rehab them to increase their value, rent them out to tenants, refinance to reduce your initial investment, and repeat the process with another property. However, it can be difficult for beginners to know which properties align with the BRRRR model and which steps to take to maximize their profits along the way.
The first step in the BRRRR investment strategy is to find a property to purchase. While finding discounted properties may seem like a daunting task, there are several ways to look for them, including using real estate agents, attending auctions, or scouring online real estate platforms. Calling FSBO (for sale by owner) listings is another way to find and acquire discounted properties. When evaluating a property, it is essential to consider the location, size, and potential return on investment (ROI).
Once you’ve purchased a property, the rehab phase begins. During this step, you will improve the property by making necessary repairs, remodeling, and upgrading the home. Focusing on making aesthetic and functional changes that appeal to tenants will ensure the property will be rented out quickly. Remember to keep the costs of the rehab limited to what is essential to improve the property’s value. Balancing the value of the home with the desires of potential tenants are an important aspect of this phase. As a beginning investor you may want to consult with a licensed real estate agent or decorator to determine which modifications will provide the best return on your investment.
After you’ve completed the rehab, it’s time to find tenants for your property. You can find potential renters by listing the property on real estate platforms, advertising in local newspapers, or using social media. Hiring a professional property management firm at this stage will provide legal protections in the leasing aspect, and ensure efficient management of this phase of the BRRRR method moving forward. It will also enable you to expedite your efforts to find the next home for acquisition. Whether you hire a management firm or self manage the rental, ensure that you’re thoroughly screening and selecting the right tenants to improve the chances of a consistent stream of rental income.
Once you have rented out the property, you can then refinance in order to leverage the home’s value and reduce your initial investment in it. By increasing the property’s value through rehab, you can achieve a higher loan-to-value (LTV) ratio when refinancing. This provides additional cash to use in the next home and reduces your initial capital investment.
The repeat phase marks the final step in the BRRRR investment strategy. During this stage, you should start looking if you haven’t already for another potential investment property to buy, rehab, rent, and refinance. As you repeat the process, you accumulate more properties, create a portfolio, and generate a steady stream of passive income. Be careful not to over leverage homes during this process as vacancies and poorly screened tenants can increase your risk of a potential default. Consider selling a remodeled home on occasion in lieu of renting in order to minimize your risk. This will free up more capital and allow you to continue the process without getting over leveraged.
The BRRRR investment strategy is an excellent option for beginner or seasoned investors looking to jumpstart or maximize their real estate portfolio. It is essential to identify a property that aligns with the BRRRR model, make necessary repairs and upgrades, find the right tenants, refinance to reduce the initial investment, and repeat the process.
As an investor, you should always be prepared to face challenges. It is essential to take calculated risks, stay informed about market trends, remain patient, and be persistent in finding the right investment opportunities. With the right mindset and adherence to the BRRRR strategy, you can create a lucrative and profitable real estate investment portfolio.