Mortgages & Creative Financing

The Pros & Cons of the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Strategy

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In BRRRR real estate investing, the property is treated like a flip, using short-term financing such as private money, hard money, a home equity loan, or cash to acquire and rehab. Then, after the property has been finished, it is rented out to a tenant. The owner then obtains a refinance on the property to pay off the short-term loan and turn the property into a stable, long-term, cash flow positive property.

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Of course, as with all investments, the math has to work for the strategy to work. When a person goes to refinance such a property, a bank will typically only refinance up to 75 percent of the new value. Therefore, for you to get enough to refinance the entire short-term loan and to possibly get back your rehab money, the property needs to be worth significantly more than what you paid for it.

For example, let’s say you bought a property for $100,000. The property needs a $25,000 rehab to be rent ready, for a total cost of $125,000. You could use a short-term loan to buy the property (like hard money) and your own cash to rehab the place. Then, you’d refinance the property with a new loan from a lender. If the new lender’s appraisal came in at $160,000, they might give you 75 percent of that amount in a new loan, which is $120,000. This would pay back your entire short-term loan, get you most of your rehab budget back, and give you a stable, long-term rental property with $40,000 of equity at the start.

Related: Case Study: My BRRRR Deal That Went Sideways (& What I Learned From It)

Of course, this example only works if the ARV comes out at the $160,000 level. It wouldn't be as nice if the ARV were to come in at $100,000, and the bank would only give you a loan for $75,000—not even enough to pay back the short-term loan. This is what I mean when I say the math has to work for the strategy to work. Let's summarize some of the pros and cons of this strategy.

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Pros

Potential No Money Down

BRRRR investing is one of my favorite strategies for investing without needing a lot of cash. If the numbers work out right, you could get into a deal for very little money out-of-pocket, or perhaps even none! Of course, the better the deal you can find, the less money you'll ultimately need to provide.

High ROI

Because of the low amount of out-of-pocket cash you'll need for this strategy to work, your ROI should be astronomical. In other words, if you end up having only $10,000 in the deal, but you are cash flowing $2,500 per year, that's a 25 percent cash-on-cash return, and that doesn't account for all the equity you built during the rehab stage.

Looking for the secret to creating wealth in real estate? The BRRRR method—or “buy, rehab, rent, refinance, repeat”—is our proven, easy-to-follow method to build your portfolio. When you buy a home, fix it up, improve its value, and then refinance, you’re borrowing against the value of the property at its highest. Done correctly, this allows you to recover more of—or sometimes all of—the money you invested in the property. Our guide to the BRRRR method explains each of the steps and outlines how to build wealth through real estate, one property at a time.

Equity

BRRRR real estate investing allows you to build some serious equity right off the bat. Rather than owning a rental property that is worth what you paid for it, wouldn’t owning one that you have $40,000 of equity in be better?

Renting a Rehabbed Property

After the full rehab has been done, and the property is rented, you own and lease a property in Class A condition. This can help you attract the best tenants and reduce your maintenance budget on the property, making your landlording more hassle free.

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Cons

The Short-Term Loan

The short-term loan you get at the beginning can be expensive, especially if you are using a hard money loan. Also, the short term on these loans can make the carrying costs expensive, possibly resulting in negative cash flow during the time you are paying on the loan. For this reason, many people use a home equity loan or cash to fund the first phase of the project, then refinance to get their cash back so they can rinse and repeat.

The Possibility It Doesn’t Appraise

Of course, if after the rehab, the home doesn’t appraise high enough, you could end up with a problem. This is why doing the correct math going into the deal is imperative.

Seasoning

The refinancing bank will likely require you to wait six months or maybe even 12 months after the original purchase before they will refinance the property. This period of time is known as “seasoning,” and most conventional and portfolio lenders require it. If your end-lender requires you to wait 12 months, but your short-term loan is only good for nine months, you’ve got a problem.

Related: 3 Critical Keys to a Successful Refinance (for the BRRRR Strategy!)

Therefore, when I use this hybrid real estate investing strategy, I try to make sure my short-term loan is for no less than 18 months. This gives me the time I need to refinance, and if something goes wrong after month 12 and the refinance won’t work, I still have six months to sell the property or hunt for a new refinance.

Dealing with a Rehab

Finally, when you use this strategy, you have to deal with the complications of a large rehab project. And trust me, rehabbing a property is not easy. Dealing with contractors, unknown problems, mold, asbestos, theft, and the rest of the headaches that come with a rehab are not fun.

In summary, BRRRR real estate investing can be a powerful way to build wealth through real estate and one of my all-time-favorite strategies. Being able to capitalize on the forced appreciation the way a house flipper would while acquiring a great rental property that will provide years of cash flow is truly getting the best of both worlds. However, the strategy is not a simple undertaking. It requires exquisite math, planning, and the ability to find a great deal. But for those willing to take on the challenge, BRRRR real estate investing can supercharge your business and set you on a path to greatness.

What would you add to this list?

Let me know with a comment!

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 taught millions of people how to find, finance, and manage real estate investments. Brandon began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, Brandon is the managing member at Open Door Capital. With nearly 300 units across four states under his belt, he continues to invest in real estate while also showing others the power and impact of financial freedom.
    Michael Osman
    Replied over 3 years ago
    Thank you for this article. I’m new to this and would love to hear BRRRR experiences in Honolulu. Thanks again.
    Rey Alvarado from Lancaster, Pennsylvania
    Replied over 3 years ago
    Good read. If there is a podcast on the BRRRR strategy, please some link me to it. This is something that i need more knowledge on.
    James Kandasamy Real Estate Investor / Syndicator from Austin, TX
    Replied over 3 years ago
    Love BRRRR, on Seasoning, I have done 11 BRRRR and always refinance into conventional loan within 6 months. I am not sure whether it’s a Texas thing but I never had a lender that gives me a seasoning period requirement. I have dealt with 4-6 lenders for all the 11 properties. Now I am BRRRR’ing Apartments !
    Corey Reyment Wholesaler from Green Bay, WI
    Replied over 3 years ago
    We love the BRRRR! Our first deal was a BRRRR and it has set our business up for a lot of success moving forward. We had a private loan with a friend for part of the initial purchase and cashed in a roth ira of ours for the remainder and the rehab (only $6K mostly cosmetic updating rehab). It was rented when we bought it and the rents were under market so we raised rents within that time frame. We ended up getting it to appraise out for about $84K and we were all in to it for about $65K. We were able to get a line of credit on it for $63K that we then used for part of a purchase on a 4 plex we flipped and then used the line just recently to close on a property we are wholesaling. Great strategy and thank you to Brandon and the BP community for introducing us to BRRRR!
    mike mosee
    Replied over 3 years ago
    Be prepared if you use conventional refinancing to have every piece of your financial life examined. The mean little nasty underwriters can make your life miserable.
    Rob Sawyer Rental Property Investor from Syracuse, NY
    Replied over 3 years ago
    I’ve heard it referred to by Cam Dunlap as a “Financialoscopy”…pretty fitting!
    Jarda Brych Rental Property Investor from San Francisco, CA
    Replied over 3 years ago
    Glad to see this article, mentioning the cons. I had a feeling for a while that too many of the article authors on BP have drank too much cool aid lately.
    Richard Andrade Investor from Lawrence, Kansas
    Replied over 3 years ago
    Could someone help me wrap my head around the refinance portion of BRRRR, that I guess I would consider as a con, if I’m thinking correctly? Here’s a simple example: Buy a property for $100k, assume 20% LTV, so putting $20k down, financing $80k. Rehab it, re-appraises for $125k. Now at this point, to refinance and cash out, you are faced with the con of a) paying closing fees on the cash out refi and b) the cash out refi now increases your outstanding loan balance from $80k to $100k. Which means your P&I payments a) reset, so your principal/interest ratios reset back to starting points that are now most favorable to the lender, and b) increase, so your monthly mortgage expense is now higher, hurting cash flow numbers moving forward. Now I understand the great advantage of freeing your cash in the refi, but I haven’t seen anyone mention the drawbacks I mentioned above. Am I right to think they exist or are they considered so minor in relation to the pro of cash out that they are not worth considering? Thanks!