Landlording & Rental Properties

How to Make $100,000/Year with Fixer-Upper Rentals (by Buying Only 2 Properties Annually)

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
562 Articles Written
mortgage-rates

Some people work so hard to make money in real estate. They flip dozens of homes, deal with hundreds of tenants, and are always trying to put out a fire somewhere.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Sounds exhausting, doesn’t it?

But what if I told you that within five years you could be making $100,000 annually from just two real estate transactions per year? Sound too good to be true?

Today I want to teach you about the BRRRR strategy and the power it can have in your real estate investing. I’ll also be walking you through a step-by-step plan for making $100,000 per year using this powerful investing plan.

What is BRRRR?

BRRRR is an acronym for a popular investment strategy that, until now, hasn't been given a name. So, I decided to name it! BRRRR stands for:

  • Buy
  • Rehab
  • Rent
  • Refinance
  • Repeat

In other words, it's the strategy that involves buying fixer-upper rental properties, repairing them, leasing them out to great tenants, refinancing to get your money back and then repeating the process over again and again. This can be a powerful strategy because of the ability to acquire numerous properties without you running out of capital to invest—and at the same time, combining the benefits of house flipping with the wealth-building characteristics of rentals.

Let’s break down the strategy for you and look at each step.

1. Buy

The first step in the process is to buy a great deal. Not just any deal… a GREAT one. Great location, great neighborhood, but a fixer-upper house.

BRRRR investing is very similar to house flipping; in fact, it IS house flipping, but rather than selling the house, you are going to rent it out after fixing it up. But the same principles that go into house flipping are needed here.

For example, a popular rule of thumb used by many house flippers is the 70% rule. This rule states that the most a flipper should pay for a property is 70% of the after repair value (what it’s worth when fixed up), less rehab costs. So a house that has an ARV of $150,000 and needs $30,000 worth of rehab could be bought for $75,000 because:

$150,000 x .7 = $105,000.

$105,000 – $30,000 = $75,000.

Think that’s impossible to achieve? Just ask most successful house flippers, and they’ll tell you that their entire business model is built on margins similar to this. So stop saying, “I can’t do this,” and start asking “How can I do this?

It may require direct mail. It may require Craigslist. It may require driving for dollars. It’s going to take some hustle. But if house flippers can do it, so can you.

To finance this first purchase, it's unlikely you'll be able to use a traditional lender. Most lenders are unwilling to loan money on a fixer upper. This means you are probably looking at options such as hard money, private money, cash, home equity, and the other strategies that I outline in The Book on Investing in Real Estate with No (And Low) Money Down. So if you haven’t read that yet, start there. It’ll change your life.

Related: The Ultimate Guide to Analyzing Rental Properties (+ Free PDF!)

Female hand holding key house shaped keychain.

2. Rehab

The next phase in the BRRRR strategy is to fix the property up. However, unlike in house flipping, this property will be rented out for a period of time, so the materials you use should reflect that reality.

For example, I’m working on a BRRRR property right now. (I just purchased it last week and am in the middle of the rehab part now.) When my crew tore up the carpet, we discovered beautiful hardwood floors underneath. While this seems great… I’m actually not going to refinish them, yet. To refinish them would cost me around $3 per square foot, or $3,000 total. Then, someday when I go to sell the property, I’ll probably have to refinish them again because of the heavy tenant usage. And that’s IF I can refinish them again (you can only refinish floors so many times before they are sanded too deep.) Therefore, I’m going to use laminate wood floor throughout the entire home. This will protect the floors, for around $2 per square foot, and will look amazing. Then, before I sell it someday, I’ll just remove the laminate and finish the floors then, to sell for top dollar.

The key to rehabbing a BRRRR property is to make the property as “tenant proof” as possible, using materials that will last a long time and won’t need to be redone later. Also, it’s important to rehab with the goal of getting the highest ARV and rent possible. For example, if you can turn a two-bedroom home into a three-bedroom home, do it! This can add hundreds of dollars per month in cash flow and thousands in equity.

Of course, you could do all the work yourself if you wanted, or you could hire it out. That’s up to you and dependent upon your skills, availability, and desire. DIY can save you a lot of money, increasing the odds you’ll find a deal that has numbers that work. But it will also take a lot of weekends and evenings.

3. Rent

Next, it’s time to rent the property out to GREAT tenants. Luckily, you just bought a property located in a great location and rehabbed it to look brand new. It shouldn’t be hard to find incredible tenants to rent the house.

Furthermore, because the property was rehabbed at the start, your repairs and capital expenditures (roof, siding, paint, etc.) should be fairly low for the next few years. Everything has already been fixed! Of course, you’ll still need to budget for repairs and maintenance, but it should be much less than you thought.

Then, it's time to rent the property out. You might choose to hire a property manager, but because you already rehabbed the property and because you are renting to high-class, great tenants, managing a BRRRR deal shouldn't be too hard. I would save the money and do it yourself!

Now, to say something a little controversial: the goal of the BRRRR strategy is NOT to make a ton of cash flow. I know, I know—that goes against almost everything I’ve ever preached before. And I’m not saying to buy something that won’t cash flow. I won’t accept long-term negative cash flow. Ever. BUT if I’m only making a little bit of cash flow, that might be okay with the BRRRR strategy, because the power of the BRRRR strategy is in the long “flip”—the equity built. I’ll explain this more in a bit. But first, let’s talk about the next “R” in the process.

4. Refinance

Earlier I talked a little about how you were going to finance the property and mentioned that it's tough to get a conventional mortgage on a fixer upper. However, conventional mortgages are REALLY nice—low interest, long term, easy. So the fourth step in the BRRRR strategy is to refinance into a nice conventional mortgage after the property has been fixed up. And even better, by refinancing, there is the possibility of getting all your money BACK.

Of course, you don’t NEED to refinance the property to get your money back. Perhaps you make great income from a job and can afford to let your down payment/rehab money stay in the property. This will likely help you get better cash flow, and maybe you’ll get a better ROI than you’d get elsewhere. However, if you are like me, you probably want your money back so you can do it again and again. So let’s talk about how to do that.

In other words, let’s go back to those numbers we used earlier. We found a property that had an ARV of $150,000. We purchased it for $75,000 and put $30,000 into the rehab. At this point, we have $105,000 into the purchase.

Most lenders will allow you to refinance a property for 70 percent of the ARV (in other words, they will do a 70 percent loan to value [LTV] loan on the property). Well, it just so happens that 70 percent of $150,000 is $105,000… so we could theoretically get back 100 percent of our invested capital.

That's right—we're going to refinance this property with a low-interest, 30-year fixed mortgage for $105,000. This will pay back whatever source of funds we used on the original purchase and rehab. In this example, the only money out of pocket will be the closing costs.

After the refi, you should have a completely stabilized rental property that shoots off a little bit of cash flow and has roughly 30 percent equity just sitting there. Plus, you’ll have all your money back, so it’s time to…

5. Repeat

The final “R” in the BRRRR strategy is to repeat the process. I mean, it worked once, and we got all our money back, so why not do it again? And again? And again?

Sure, at some point the bank will stop refinancing the properties for you. And maybe you’ll need to find another solution, like a portfolio lender or a partnership. But it CAN be done.

Each deal you repeat, you are gaining 30 percent equity at the end of the day and getting your cash back in your pocket.

Related: I Used Portfolio Lending to Transform My Business. Here’s How You Can, Too.

cash-on-cash-return-real-estate

How to Make $100,000 Per Year With BRRRR

Now that we’ve covered the five steps of the BRRRR strategy, let’s look at an example of how someone could make $100,000 per year using this process.

Historically, prices of real estate have climbed around 3 percent per year when averaged out. Yes, some years are better and some worse, but over time, this has been true. But let’s be a bit more conservative and say 2 percent per year.

Therefore, say we bought a property today with an ARV of $150,000 but paid just $75,000 for it. Then we rehabbed it with $30,000 and refinanced it for $105,000. Then we rent the property out. At a 2 percent increase per year, this property could be worth $165,000 five years from now. At the same time, the loan during those five years would have been paid down so the balance would be just $96,000.

In other words, after five years, we would have $69,000 in equity. Of course, if we went to sell the property, it would likely need another coat of paint and maybe some other minor fixes. Plus, we’d have to pay the real estate agents about $10,000 as commission. And then we’d pay a few thousand in closing costs. So that $69,000 in equity would look a lot more like $50,000 in profit at the end of the day.

Therefore, to make $100,000 per year using the BRRRR strategy, you simply need to buy two deals each year, and starting in year five, begin selling two each year.

As long as these numbers work, you’ll never have more than 10 properties, and after five short years, you’ll be making six figures by just doing two purchases and two sales per year. Now, that could truly be a “four-hour workweek.”

Of course, if you want to take that $100,000 per year and quit your job, you could. You could buy an airplane. You could go to Tahiti. Or…. you could recycle that money and turn that $100,000 into millions. But for more on that, you’ll need to read my post “How to Make $1,000,000 Through Real Estate Investing.”

The Biggest Drawback of the BRRRR Strategy

At this point you are probably thinking, “This sounds great… so what’s the catch?” As with all investments, there are a few drawbacks to be aware of. There is a looming one that you may have already wondered about: what if you can’t refinance?

If you are unable to refinance the property to get your money back out, you are kind of stopped in your tracks.

Therefore, I recommend visiting a few local banks and making sure you are a good enough borrower before you ever purchase the first deal. Of course, if after the rehab you are unable to refinance the property, you could always wait until the first-year lease is over with the tenants, kick them out, and sell the property.

Having multiple exit strategies is always a great thing and one of the perks of the BRRRR strategy.

Other drawbacks include: What if the tenant destroys the house? What if you can’t find a good enough deal? What if you can’t finance the original purchase?

These are legit questions, but the cool thing is—there are answers! These are the kind of questions asked every day in the BiggerPockets Forums, so if you are not engaging there, you are missing out on one of the most powerful tools you have at your disposal.

The Bottom Line

The BRRRR strategy has a lot of moving parts, but if you work it right, it can be a powerful ally in helping you build some serious wealth.

Following this strategy can help you combine the equity growth of flipping with the tax benefits, cash flow, and appreciation of rental properties, maximizing your profit at the end of the day.

So, what do you think? Have you tried the BRRRR strategy in your business?

Let me know in the comments below this post!

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
Read more
    Courtney Jurasko from Los Angeles, CA
    Replied over 2 years ago
    Oh wow! I didn’t realize until I got to the end that you’re the same Brandon Turner whose audiobook I’ve been listening to on my trips to and from LA from where I live in the Central Valley of CA. I’m almost done with getting my real estate license and I can’t tell you enough how much I love your book! You’ve definitely inspired me and I appreciate your input so much! Thanks Brandon!
    Christopher Stacy Rental Property Investor from Wiesbaden Germany
    Replied over 2 years ago
    I couldn’t read all of the 115 comments so I’ll have to apologize ahead of time if this question has already been asked. For the initial deal, are we talking about refinancing from a hard money lender to a conventional bank loan or something else? I think this is the piece missing from the scenario that I can’t get my head wrapped around. Thanks!
    Ronald Daley from Homewood, Illinois
    Replied almost 2 years ago
    I am a few years late, but excellent post! Very informative. Thanks Brandon!
    John Murray from Portland, Oregon
    Replied about 1 year ago
    Great information! I’m a BRRRR guy and purchased as much as I could in metro Portland Oregon. Purchased my last REO about 2 years ago. I have 8 left and when a tenant moves I flip it. The benefits are no earned income (no SSI too), $80K Fed pass on capital grains (keep AGI low) and the big one depreciation on rentals wipes out recapture. This is a no brainer when you enter a market on the rise. You have to purchase about 20-30% below market and refinance after the seasoning period. One word of IRS caution you must reinvest the proceeds back into real estate until the property is terminated and then you have to settle with the IRS and your state. This applies even when you refinance your present abode, no trip to Mexico. If you Itemize the IRS does not like your trip to Mexico.
    Brittney Lundeen Rental Property Investor from Minneapolis, MN
    Replied about 1 year ago
    Great strategy! I’m currently reading David Greene’s BRRRR book and LOVE it! My question is, what do you do after you’ve refinanced a handful of properties? Isn’t there a maximum amount of loans you can have?
    C.L. Arrington
    Replied about 1 year ago
    Hello everyone, I’m a newbie to real estate investing. I currently have a home sitting on a little over quarter acre of land. However, a leaking roof has caused considerable water damage to the floors and walls inside of the house. (Side Note: There’s also an underground basement inside the house) My Question: Would it be cost effective to rehab the current structure ( gutting the inside and fixing up the outside ) or to tear down the house and build a tiny home of one form of another in it’s place?
    Account Closed
    Replied 12 months ago
    I couldn’t read all of the 115 comments so I’ll have to apologize ahead of time if this question has already been asked. For the initial deal, are we talking about refinancing from a hard money lender to a conventional bank loan or something else? I think this is the piece missing from the scenario that I can’t get my head wrapped around. Thanks!
    Jeffrey Bower
    Replied 12 months ago
    This is a great strategy and want to see if this would work where I am interested in purchasing.
    Arya Jackson from San Francisco, Bay Area
    Replied 11 months ago
    Brrrr is a great strategy that I've researched a lot and have been wanting to get into. Thank you for this information!
    Anita Effendi Realtor from Corona, CA
    Replied 11 months ago
    Hi Brandon! I am in the beginning stage of BRRRR -- anyone has any referrals for Refinance part in CAlifornia ? Non-traditional financing since I cannot pass under normal guidelines. :)
    John S Lewis from Jackson, NJ
    Replied 11 months ago
    Hi @Brandon Turner. I did the BRRRR last August, on my first deal. I've been struggling to find another good one like that here in NJ. I did do a wholesale deal and I'm now in a flip though. Onward and upward. The biggest hurdle for me going forward is the re-fi though. Because I no longer have 9 to 5, the banks typically don't want to hear from me because I have no w-2 income. So I'm always on the lookout for asset based lenders. Thanks for reviving this article!!
    Tamara Reusse
    Replied 10 months ago
    Is there any tricks to getting closing cost down on the refi? Mine ended up being 5-8,000$ which if your only able to pull 30,000out that can be almost a third of it. Should you do a heloc instead?
    Russell Grevler
    Replied 4 months ago
    Did anyone answer this?
    Kevin Coleman
    Replied 9 months ago
    Absolutely LOVE the BRRR method! Started doing it before finding Bigger Pockets and realized it was a thing. It made so much sense I wondered why everyone wasn't doing it. I was able to pull enough equity out of one deal to pay off the balance on my personal mortgage. I now have a HELOC which I now use to "pay cash" for properties - and repeat. (I do have the advantage of having construction experience and the ability to self-perform much of the rehab work to further leverage the process.) Recently left my "9 to 5" and beginning my search for lenders who will lend based on the cashflow of the deal and not just a W-2. Thanks Brandon and Bigger Pockets Community for the affirmation of the the method and providing unbelievable resources!
    Michele Emerick
    Replied 8 months ago
    Love this post. I read most of the BP articles that show up in my email. They always seem to be on point with what I'm wrestling with at the time. What's equaly (in my eyes) as important though are the posts at the end where people who have tons of experience are incredibly patient with us newbies and set us straight on what we don't know. The more I research investing in real estate, and read about different ways my portfolio can go, the more I realize how little I know. Thank you so much for sharing your experience/wisdom. It does take time, and one person said they needed a nap after their post. I hope you got your nap. I am eternally grateful to BP and to the experienced investors who take the time to explain step by step how this stuff works. I am, at this point, frozen as far as what way to go with my portfolio but this article opens up some possibilities. Thanks, Brandon and all the others who posted.
    Regina Story
    Replied 8 months ago
    The original post goes back several years so I was unable to read every response, but I read some of the original ones and then skipped down to the more recent posts. One in particular stood out because it had hogwash in captial letters. I have to emphatically disagree. I can attest to the fact that this strategy DOES work! Will it fall into your lap? Most likely not. You will have to put effort into any plan you decide to follow. That means start at the beginning and buy the property correctly. That can not be overlooked. IF you do not buy the property correctly, you will just have a headache in perpetuity, until you unload the property(don't ask how I know this--LOL!!!). So that said... It seems that the majority of follow up questions concerned the refi. And that will be your first problem if the purchase was not made for the right price and you have put too much into the remodel. Those numbers have to be predetermined and followed. I digress, back to the issue at hand, the refi and where to find the right lender to assist you. I would suggest that you develop a relationship with a financing person, not an institution. I sat down with my banker(who I have a relationship with and he knows me) and discussed my plans with him. I actually heard this on one of the BP podcasts-he just went in and talked to his lender. So I did that! He gave me a LOC, not a HELOC, but a business LOC. No problem at all getting it all in our business name. We purchase all our properties under our business name and as soon as the property is remodeled and ready to rent, we have it refinanced(in our business name) at 70% of appraised value with a low fixed interest rate at 30 yrs. No seasoning period. How did I do this? I went in and opened a dialogue with him. I stay in contact with him monthly, but more like weekly. We started slow with just one property. We built his trust in our business decisions and strategies and he is totally on board. We have, at times, hade three projects going at once. We are now looking at multi family and I did the same as before. I went in and sat down with him and told him my plans and asked his opinion and he is on board! He knows we are not going to do anything foolish and will do all our homework before coming to him with a project, but he has assured me that the money is there when we need it. I go to him with facts and numbers and show him I have down the research and have a good investment for him to back. You may have to work to find a lender like mine! But they are out there.
    Matthew G. Hylton New to Real Estate from Columbus, OH
    Replied 3 months ago
    Do you recommend a small local bank or a large national institution?
    Anthony Shavies from Springfield, MO
    Replied 8 months ago
    Thank you so much for that info Regina. I’m going to find a finance person to talk to about my plans!
    Rob Ross from University Place, Washington
    Replied 8 months ago
    My question is regarding the last R, the refi. Aren't lenders going to want 20% down since this is going to be a rental property?
    David Braut Rental Property Investor from Grass Valley, CA
    Replied 8 months ago
    The idea is that you are refinancing at 70% of ARV. So you “created” this equity by buying right and by doing the rehab. There is no down payment since it is a refinance on a house you already own.
    Gary Reese Investor from Bethel Park, Pennsylvania
    Replied 8 months ago
    I'm a little further down the road with my investing; have around 20 houses. Would this strategy work if I just refinanced two of my properties every year on 15 year mortgages? That way I would just roll my existing houses, and not worry about finding deals or taking on marginal deals. Thanks
    Duncan Hayes Rental Property Investor from Detroit, MI
    Replied 8 months ago
    Will be implementing this strategy with small MF properties in the metro Detroit area. Will keep all posted on my journey.
    Ammon Hoover from Aurora, CO
    Replied 8 months ago
    Why are there comments from 4 years ago when the article says it was just written? Can we please put a REAL written date on the articles Please?
    Eva Maro
    Replied 3 months ago
    I wondered the same thing...? Perhaps it was recently refreshed..? Please make the posting and edit dates clear so we’d know how relevant it is.
    Don Taylor New to Real Estate from Raleigh, NC
    Replied 8 months ago
    I literally read every comment on this page. Thanks for the tips everyone
    Victor Perez
    Replied 4 months ago
    I love this strategy. I will put it in practicefor my first deal.
    Patterson Seney
    Replied 3 months ago
    Thanks for sharing your strategy. This is what I envisioned when I got into Real Estate but I’ve encountered some set backs that’s push me back. I want to do it better this year and learn from my mistakes. Unfortunately, my rental properties are in Detroit and I live in MA. Can I get some guidance here to be more effective in this field?
    Russ Wahl Contractor from Saskatoon Saskatchewan
    Replied 3 months ago
    We are under contract with our first Duplex, one side has a tenant paying regularly. The other side has been gutted. We are going to take what we’ve learned and BRRRR this place! Wish us luck!
    Max Loi from OUT OF STATES
    Replied 3 months ago
    How can I use brrrr strategy if I live on out of us? I cant refi
    Kohl Crump
    Replied 3 months ago
    When you usually ask for a refinance doesn't it mess with the loans amortization schedule!!! meaning your initial property you purchased gets little to no principal pay down over time if you have a tenant!!!
    Neema Nene from Manassas, Virginia
    Replied 2 months ago
    Brandon, Thank you so much for your wonderful articles. I've been doing this BRRRR strategy since 2012 and didn't name it as such. In 2018 I took few of my properties and used the equity in them to buy 7 properties at once and actually got paid at closing. I used the portfolio loans to do this. Now I want to move to the next step and would love to chat with you. How do I connect with you?
    Shaunda Stewart
    Replied 2 months ago
    I am ready to start what should I do first...
    Mark Leclair Rental Property Investor from 06002
    Replied about 2 months ago
    Brandon, Like the post and from one of your webinars I’ve seen before I always remember in the back of my mind “it doesnt take a lot of real estate to make money, just the right ones”. Always in the back of my mind and exactly why I DO NOT get emotional on any deal. Thank you for everything.