One of the most popular ways of investing in real estate is by using the BRRRR strategy. Ever heard of it? Some have and some haven’t; yet those that have heard of it and use it will swear by it. With BRRRR, you can go from acquiring one rental property to cashflowing ten rental properties in just 5 years.
Here’s what BRRRR is…
BRRRR stands for Buy Rehab Rent Refinance Repeat. BRRRR combines the best of house flipping with the best of rental property investing to give you a killer strategy for increasing your holdings by two properties per year. Let’s have a closer look.
BUY a fixer-upper. Look for a really good deal on a distressed property. Aim for the worst house in the best neighborhood. Most investors uses short-term funding, like getting a hard money loan to cover the purchase and the rehab.
REHAB that house. Get it into good condition, comparable to good homes in that immediate area. Keep in mind that you’re rehabbing it for tenants, not for a resale. Get all the house’s systems in good working order and go for more durable finishes rather than high end.
RENT it out to a good tenant. Study comparables carefully and set your rent to be competitive. Screen for good tenants who will pay their rent consistently.
REFINANCE. This is the step that sets this strategy apart from just doing a fix-it-up buy-and-hold. What BRRRR investors do is to get a six-month hard money loan to partially finance the purchase and rehab. During those six months, the goal is to complete the rehab, get it rented out and go to the bank to refinance. The forced appreciation enables the flipper to pay off their hard money loan, recover their capital, make a profit and still have equity in the house too.
REPEAT! Having pulled out the money you put into this project, you’re now ready to buy your next fixer-upper. By repeating the BRRRR strategy every six months, you’ll be growing your number of houses by two per year.
Does this really work?
One investor bought a fixer-upper in West Philadelphia for $30,000 and rehabbed it for $50,000. He got it rented out. The house was appraised at $110,000. Just under six months from when he purchased it, he refinanced at the bank, borrowing $88,000 (80% LTV) which was enough to pay back the $80,000 he had used in this home plus it gave him $8000 profit and $22,000 (20%) equity. He had lined up his next fixer-upper by that point and repeated this process.
Of course this is just one example and everyone’s experiences vary. We’re not guaranteeing returns by telling you this; just showing you how the process works using a real-world example.
Summary
For an investor wanting to use the BRRRR strategy, what are the best neighborhoods to invest in Philadelphia? It really depends on you, how much capital you have, how much you can borrow from your hard money lender and where you can find a house that will rent and appraise well after doing the rehab. The BRRR strategy has worked well for investors in West Philadelphia, Wynnefield, Brewerytown, Chestnut Hill, Germantown, and Roxborough—just to name a few.