Flipping Houses

How BRRRR Increases Your ROI (and Why You Should Be Using It)

Expertise: Personal Development
37 Articles Written

If you spend any significant period of time on BiggerPockets, you’ve no doubt heard of the BRRRR strategy to investing. If you aren’t quite sure what it means, that’s OK. It’s an odd name, created by the infamous Brandon Turner, to describe a method of buying an investment property, fixing it up, and then refinancing it instead of selling it.

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In spite of his gigantic frame, Brandon is actually a pretty smart guy. He’s come up with a signature term to help describe an investment method that’s been in place forever. Thanks to Brandon’s clever marketing, more people have become familiar with what is, in my opinion, the best way there is to buy rental property. BRRRR allows you to increase your ROI in big ways while also preserving your capital. For those of you unfamiliar with the method, follow along and I’ll explain how it works.

The Definition

BRRRR stands for: Buy, Rehab, Rent, Refinance, Repeat.

It is a method of acquiring an asset, improving it’s value, stabilizing it, then pulling your money out on a loan. While most investors tend to take out a loan when buying a property, experienced ones know this isn't the most efficient way to do so.

Consider this: if your crush asked for a picture of you, would you take the picture, send it, then put on your makeup and fix your hair? Of course not. You would want to look your very best before you presented yourself to the person you wanted to impress.

Real estate investing works that way too. Before you go to the bank to ask for a loan, you want your property in it's best condition, so that t's worth it's absolute most. Taking out the loan and then fixing it up afterward is like taking and sending the picture before you look your best. This post should help you understand why this matters, how it helps your bottom line, and why the best investors all understand this.

(If you’re doing this for your Instagram, you’d better be doing it for your business!)

How To Calculate ROI

ROI (return on investment) is the rate of return you can expect on your investment. When someone claims they earned a 10 percent return on their investment, they are usually referring to ROI. In real estate, we also refer to this as “cash on cash.”

Brace yourself, I’m about to introduce a little math (I’ll keep it brief). To calculate ROI, you take your yearly profit and divide it by the amount you’ve invested.

For real estate, you would take your monthly cash flow, multiply it by 12 (to convert it to yearly profit), then divide by your down payment.

(Cash flow x 12) % (down payment)

That’s it. It’s really simple. Two different numbers in the formula, both very basic. It’s important to understand this because our goal as investors is to both increase our ROI. If you don’t understand something, you can’t improve it. This is why we say knowledge is power.

Related: The Ultimate Guide to Quickly Estimating a Property’s ARV (After Repair Value)

How To Increase ROI

It’s not enough to just understand ROI. We want to improve it! Because there are two numbers involved in the equation, there are two ways to increase your ROI (yearly profit and the down payment). Knowing how to manipulate these numbers gives us the power to control our ROI.

The first way to increase ROI is by increasing the yearly profit. This is also the method most people focus on, because it’s easier to control. If you think about it, once you’ve put a down payment on a property, it’s hard to get that money back. It’s much easier to make the property more profitable, so that’s what most people will work on.

There are several ways to increase the yearly profit. The obvious ones are to raise rents or decrease expenses. Learning to do these are fundamental to becoming a good real estate investor. Because rents usually rise faster than expenses do every year, it’s not uncommon to see your ROI improve as time passes. Most investors expect this and underwrite it into their pro forma.

The other (and less common) method of increasing ROI is to decrease your down payment. This will be what we focus on in this blog post.

How Loans Work

Most people consider a down payment to be a “fixed cost,” meaning, it can’t be reduced. The bank requires a down payment of 20-25% for most investor loans, and there’s nothing that can be done about that.

This is because most people don't understand that you don't have to get the loan when you're buying the house.

By becoming a student of real estate investing, you learn the down payment exists so the lender ensures it isn’t funding 100 percent of the asset’s value. This is how they protect their investment. The lender will let you borrow a portion of the asset’s overall value. If we can buy a property, then increase it’s value, we can borrow more money than we’d be able to when the asset wasn’t worth as much.

Example One

You buy the property with a loan. A bank is offering a 75 percent LTV. Your property is worth $100,000 in it’s present condition. The bank will let you borrow $75,000. This means a down payment of $25,000. You spend $20,000 on the rehab, and your house is now worth $150,000. You added $30,000 of equity to the property after rehab, and you left $45,000 of your money in the investment ($25,000 down + $20,000 rehab).

Example Two

You buy the property with cash for $100,000. Then you spend $20,000 on the rehab, increasing its value to $150,000. The bank will allow you to borrow 75 percent of the home's new value, which means you can borrow $112,500. This means you left $7,500 in the deal ($120,000 (purchase and rehab) – $112,500 (recovered on the loan refi)).

That means $37,500 more in your pocket, folks. All because you BRRRR’d.

vacation-home-upgrades

Why BRRRR Is So Efficient

I need to clarify something before I continue. Thus far, we have been calling the amount of money we invest the “down payment,” but that’s a little misleading. I’m only calling it that because most properties are purchased that way. To be more precise, the amount of money left in a property that you’ve invested in isn’t always the down payment. It can be money you left in the deal after you refinance, too. Basically, as long as it’s capital you didn’t get back, we will refer to it as the “down payment.”

BRRRR works so well because (when done correctly) it reduces the amount of money you leave in a deal. When buying a property with a loan, the bank will lend against the value of the home at the time of the loan. When taking a loan out against a property after it's been fixed up (and it's value is increased), the bank will let you borrow against the new, higher value.

Buying a property under value, making it more valuable, then taking your money out is a much better way to lower the amount of money you have left in a deal, and therefore increase your ROI.

Remember how in the above example we ended up with more in our pocket if we BRRRR’d? We only left $7,500 in the property. Compare that to the $45,000 we left in by using the traditional down payment model. To put this in context, let’s plug these numbers into the ROI formula. (Option two will have slightly less cash flow because we borrowed more against the property, so our mortgage is higher).

The Numbers

Option One

(Cash flow of $500 x 12 = $6,000)  % (down payment – $45,000) = 13.3% ROI

Option Two

(Cash flow of $310 x 12 = $3,720) % (down payment – $7,500) = 49.6% ROI

In option two, we used a 4.5 percent interest rate on the additional loan balance of $37,500, which reduced our cash flow by $190 a month.

If you are stuck considering only cash flow, borrowing the additional money would seem unwise. If you’re focusing on ROI, however, it’s very apparent a nearly 50 percent ROI is much better than a 13.3 percent.

Even though our cash flow decreased by a whopping 38 percent in option two, our ROI still skyrocketed. Why?

Because leaving less money in a deal has a bigger affect on ROI than just increasing cash flow.

Related: The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Strategy: A Primer for Investors

Why Most Investors Don’t BRRRR

This seems like a no brainer, right? Why isn’t everyone doing this?

Well there are a few good reasons that deserve to be mentioned.

Impatience

It takes time to save up the money for a property. It takes even more time to save up all of it. Some people don’t want to wait to start buying, others just don’t believe they can ever save up enough money to buy a place with cash.

There are many articles written on borrowing money from family or friends, getting hard money loans as bridge loans, etc. I would encourage everyone to look into their options in order to buy and rehab a place with all cash.

I know this well, because I used to be this guy. Working my butt off to save every dime I could, and buying three houses a year. It seemed impossible to scale, because I was dropping large amounts of cash as the down payment and then spending large amounts of cash on the rehabs. Once I started to BRRRR, I stopped buying three houses a year and started buying three houses at a time.

Unfamiliarity

The process can be unfamiliar for some, and requires learning some new requirements. For one, banks won’t always allow you to refinance a place you bought with cash until a few months have passed. This throws some people off. Secondly, BRRRR works best when you buy something significantly under value that often needs major rehab work. This can intimidate some investors. Third, BRRRR requires you to do a little more work on the front end in order to determine a property’s ARV. Investing is much simpler when you’re just buying something at market price. It gets more tricky when you’re trying to gauge the moving target of a properties ARV.

Ignorance

Many people don't realize you can actually get a loan for a property after you own it. Because it is so ingrained in our minds that we get loans in order to buy something, we assume that’s the only way to do it.

It’s not.

Lenders don't usually care if you already own something or are just buying it. They only care what the loan-to-value ratio is. When we borrow money and make a "down payment," we aren't giving that money to the lender. We are giving it to the seller, so that the lender doesn't have to. From a lender's perspective, the less money they have to give you in order to buy something, the better. It makes sense.

If you ask me to borrow $50 to buy a pair of Air Jordans and promise to pay me back with interest, the first question I may ask is what the interest rate is. But that wouldn’t be the wisest.

The first question I should ask is, “How much are the shoes worth?”

If you are borrowing $50 to buy a $50 pair of shoes, I’m in trouble if you don’t pay me back. By the time I’ve confiscated the shoes as collateral, you’ve worn them and they’re worth less than $50. That means I won’t be getting my investment back. However, if the shoes are worth $150, (and you put the other $100 “down”), I could still confiscate the shoes and sell them for a decent profit, regaining my investment.

The amount of money you borrow verse the value of the asset you are borrowing for is referred to as the LTV. The LTV is one of the things the bank considers when deciding if the loan will be risky or not. The bank (or lender) doesn't care if you don't own the asset yet, or if you have already owned it. They just want to know that you're borrowing less than what it's worth.

Once you understand this, it makes sense why we BRRRR. Why borrow against the value of an asset (the house) before it’s been rehabbed, when we can wait until after it’s rehabbed and worth more? When it’s worth more, we can get more money back out.

This is what increases our ROI.

apartment-value-adds

Why The Best BRRRR

The best investors are looking to do several things with their portfolio:

  1. They want to add as much equity as possible
  2. They want to increase the “velocity” of their money
  3. They want to increase their ROI as much as possible
  4. They want to buy deals others can’t buy
  5. They want to capitalize on using OPM (other people’s money)

Increase Equity

Wealth is built fastest by increasing the value of an asset. Period. Whether it’s rehabbing a house or turning around a failing business, the best wealth builders are looking for opportunity to add value. When talking about real estate, that means adding equity through buying right and rehabbing right.

BRRRR incentivizes you to add as much value as possible before you refi so you can recapture as much equity as possible. There is really no reason to do it if you aren’t adding value to the property. The best understand this and it’s one of the reasons they love to BRRRR.

Increase Velocity Of Money

The velocity of money is the rate at which you can buy something with it, make a return, recapture that capital, and then increase it by buying something else. If you are able to add $30,000 in equity to every property you buy, you obviously want to buy property as quickly as possible. The faster your velocity of money, the more equity you can build in a shorter period of time. This adds up to really, really big returns over significant periods of time.

When you BRRRR, it allows you to build equity and also get your money back out. The more money you get back out, the more you have to invest in the next deal. If spending $120,000 on a property nets you $30,000 in equity each time, you want to get as much of that $120,000 back as possible to invest in the next deal. BRRRR makes this much, much easier.

Increase ROI

As we’ve already discussed, a successful BRRRR can have a ridiculous impact on your ROI. While beginners focus on improving their cash flow to improve their ROI, experienced investors and wealth builders limit the amount of money they have left in the deal to do so.

Now, it’s also important to be sure the property still cash flows once you pull your money out of it. Keep in mind that the more you finance, the less money you keep in the deal, but the higher your debt service becomes. For me, I need a deal with enough meat on the bone that I can recover 100 percent of my capital and still cash flow positively. I’m not advocating you lose money every month just to get your cash out. For the majority of investors, that is a bad idea.

BRRRR is a great strategy because it allows you to recover your capital and increase your ROI. The more you can buy, the higher your ROI, and the more equity you can capture or build, the faster your new worth will grow.

Buy What Others Can’t

When you’re buying something that needs major rehab work with all cash (the best way to buy something with the BRRRR strategy), you can buy houses other investors cannot. This reduces your competition and strengthens your position when negotiating for a low purchase price.

I purposely target houses that will not qualify for conventional financing. If the house needs a new roof, is missing appliances, has drywall ripped out, etc. I know the majority of my competition won’t be able to buy it because a lender cannot underwrite it.

This removes the majority of other buyers and makes my all-cash offer that much more appealing to the sellers. I’m able to buy what other investors and primary home buyers cannot.

Looking for strategies like this is how you can find success in “hot” markets when there is “nothing to buy.” Establishing partnerships with others to pool your money can give you a big advantage when you can buy properties others cannot.

Use OPM

OPM, or other people’s money, is one of the core tenants of successful full-time investors. Having money is great. Using OPM is even better.

OPM provides the ultimate leverage. It opens doors you couldn’t walk through without it. It cuts down on the amount of time you have to wait before you can scale up your investing. It allows you to get in the game sooner, and bigger, so you learn faster, and more often. OPM provides you the boost to go to a professional level, quick.

In real estate investing, it’s what and who you know that determines what you make. The more you learn, and the more connections you make, the quicker you’ll find success. The best investors use OPM, and the experience it helps them gain is what drives them from beginner level to expert. The best BRRRR, and they use OPM to do so.

If you want to BRRRR but you don’t have the funds yet, this can force you to start working on how to use OPM, which is another great investing strategy. Developing these skills, while painful and frustrating at first, produces huge dividends in the end.

Are you interested in real estate investing but there is nothing to buy that makes sense where you live? Are you tired of seeing the amazing success of others investing in markets better suited for buy and hold real estate and wish that could be you? Do you want to take advantage of wealth building opportunities but are frustrated by the fact there just isn’t any way to do that until the next market crash?

In Long-Distance Real Estate Investing, real estate investor and police officer David Greene shows you exactly how he’s built a multi-million dollar portfolio on blue collar wages buying out of state rental property without ever even seeing it. Check out this read, available today!

Have you tried BRRRR? How have you gone about about?

Let me know below!

David Greene is a former police officer with over nine years of experience investing in real estate that includes single family, multifamily, and house flipping. David has bought, rehabbed, and managed over 35 single family rental properties, owns shares in three large apartment complexes, and flips houses. He also owns notes and shares in note funds. A nationally recognized authority on real estate, David has been featured on CNN, Forbes, and HGTV. Now the co-host of the BiggerPockets Real Estate Podcast, David has a passion for teaching and helping others grow wealth through real estate. In 2016, David started the "David Greene Team" and became the CEO of the top producing Keller Williams East County team as well as the top producing real estate agent. The author of Long Distance Real Estate Investing and Buy, Rehab, Rent, Refinance, Repeat, David has won several awards including second place for real estate book of the year awarded by the National Association of Real Estate Editors (Long Distance Real Estate Investing).

    Edward Synicky Rental Property Investor from Yorba Linda, CA
    Replied almost 2 years ago
    Great concept when you are growing your wealth, at the other end of the investment path you will come to enjoy cash flow which is increased with higher equity. So at different stages you use different strategies. Today I do not give a hoot about my ROI, I now only care about how much free cash I have to spend.
    David Greene
    Replied almost 2 years ago
    Very true Edward. There is no one way to do it. Different goals determine different strategies.
    NA Deskin
    Replied 8 months ago
    David, How does buying the property with a loan rehabbing then refinancing work out?
    Karen Rittenhouse Flipper/Rehabber from Greensboro, NC
    Replied almost 2 years ago
    Fantastic detailed information, David. We did exactly what you discuss. We started out buying and holding all we could which meant we had to refinance after rehab to get our money back out to reinvest. Today, we have our holds and our wholesaling is generating the cash to pay those off. Another tremendous starting out advantage is all the tax write offs you accumulate with rentals to offset the taxes you would pay on profits without those write offs. Thanks for your post!
    Manny Vallejo from New York City, New York
    Replied almost 2 years ago
    Hi Karen, I am what you would call a rookie inverstor and started my first rental property some time ago. What tax write offs with rentals are you referring to? Maybe it’s something my wet ears haven’t discovered yet. Thanks!
    David Greene
    Replied almost 2 years ago
    Thanks Karen! Very kind of you.
    Frank Boet
    Replied almost 2 years ago
    How is the cap rate and ROI calculated if the property was bought cash with a HELOC? Is P + I included in the expenses when calculating cap rate and ROI? Also, I’m having some trouble refinancing the condo we bought last year (doing BRRRR) due to the low number of owner occupants. Can anyone recommend a lender? We purchased the condo for $110,000 and the market value is about $160,000 so we have plenty of equity to refinance 75-80%. Thank you.
    Sue
    Replied almost 2 years ago
    Frank, you need to find lenders that will write a loan for an unwarranted condo. Check with credit unions that have a new (summer 2017) product called 15/15 ARM which can be used for unwarranted (less than 50% units in assocication are owner occupied) properties.
    Sue
    Replied almost 2 years ago
    Frank, you need to find lenders that will write a loan for an unwarranted condo. Check with credit unions that have a new (summer 2017) product called 15/15 ARM which can be used for unwarranted (less than 50% units in assocication are owner occupied) properties.
    Matt Beers Real Estate Agent
    Replied almost 2 years ago
    Great article Brandon. I’m new to the BRRRR strategy, and I’m eager to make my first BRRRR purchase. Has anyone had success using hard money as OPM for purchase and rehab costs? I think my only advantage is my ability to analyze the ARV and I have great contacts to fix the properties. I’d like to ramp up my investing quickly so I can have time for my kids who are growing like weeds! This website is seriously the greatest thing in real estate right now.
    David Greene
    Replied almost 2 years ago
    Brandon is gonna be so excited you thought my work was his!
    David Greene
    Replied almost 2 years ago
    Brandon is gonna be so excited you thought my work was his!
    Matt Beers Real Estate Agent
    Replied almost 2 years ago
    Sorry, great article David!
    Stephen Anthony
    Replied almost 2 years ago
    David – Great point about loans being available *after* a property is purchased. And at least in my experience (talking about banks here), not only available but easier to obtain, close faster, and sometimes even have better terms. Doesn’t even have to be a long-term loan after a cash purchase – pop a line of credit on a recent acquisition and you have money for all the rehab or another purchase, and at a lower interest rate than a long-term loan. The important thing I’d like to point out though is you don’t need to buy with all “cash” to take advantage of BRRRR or a refinance. Refinanced loans are just as available and powerful for your ROI (more importantly IRR) if you purchase with a long-term loan on the initial purchase, improve the property, and then refinance 6-12 months down the road (depending on the lender). Regardless of how and with whose money you buy, improving a property aka forced appreciation and then a refi to reap the gains (tax-free!) of that improvement is an extremely powerful strategy as your article points out.
    David Greene
    Replied almost 2 years ago
    Great point Steven, you’re absolutely right. You don’t have to pay cash. You can purchase with traditional financing and then refinance later. I prefer not to because of the closing costs involved in two loans-but if you don’t have the cash, it’s still a great option!
    Chirag Harivadan Parikh Investor from San Jose, California
    Replied almost 2 years ago
    Hi Stephen-Great point. I was going to pop the question about how to come up with $100 or $130K in cash from get go to do a BRRR. You answered it in a way but would love to get more details. I am quickly realizing after 3 properties that I need to implement this strategy before I lose all the cash on hand.. The line of credit can be an excellent place to do this to get the initial funding..
    Marina Spor Investor from Buena Park, California
    Replied almost 2 years ago
    What are the tax consequences of doing a refinance cash out in terms of mortgage interest being deductible? Does this differ depending on how long after purchase the cash is pulled out? Thanks for a great article!
    David Greene
    Replied almost 2 years ago
    Hey Marina, If I understand your question correctly, the mortgage interest will be deductible regardless of how you finance the property. If you have it, you can deduct it as an expense. There are also no capital gains taxes owed on a refinance, only on a sale!
    Marina Spor Investor from Buena Park, California
    Replied almost 2 years ago
    Hi David, I’m getting some conflicting info on this. My understanding is that the mortgage interest on the cash out portion is not deductible. Let’s say I buy a rental with a $200k loan. In 3 years, it’s worth a lot more and I refinance a total of $300k. Only the interest on my previous remaining mortgage balance is deductible (i.e. around $190k assuming I paid off $10k of my loan balance). The interest on the cash out $110k is not deductible on this house. Although it may be deductible as an investment expense on my next purchase. However, if I buy a house all cash and then refinance/cash out within 6 months, I believe this is considered as the first loan and all interest deductible. Any Accountants out there that can confirm this and clarify the rules?
    David Greene
    Replied almost 2 years ago
    This would definitely be a question for a CPA now that I understand what you were asking better.
    Bret Faszholz Rental Property Investor from Miami, FL
    Replied almost 2 years ago
    Be very careful using BRRRR strategy as you will have to buy extremely low for it to work. And I’m talking $100K or more lower than asking. It sounds good in theory and why BP community salivates over it, but it’s successful in very few US markets as far as I can tell. It wouldn’t work for any of my properties in TX.
    David Greene
    Replied almost 2 years ago
    Hey Bret, I’m not sure how it can be risky, or where the 100k number comes from. BRRRR is more about the loan to value, or percentage of equity in the house. An actual number like 100k wouldn’t be useful because we’d have to know how much you paid for the house, what it’s worth, etc. At it’s base, you’re just basing your loan amount off of a higher number (the value of the house after its fixed up) as opposed to the lower number (the amount you paid when you got a great deal). This is what allows you to recoup more of your capital and increase your ROI.
    Chirag Harivadan Parikh Investor from San Jose, California
    Replied almost 2 years ago
    Thanks for sharing your perspective on this. Yes, it looks very enticing as a strategy.
    Susan Maneck Investor from Jackson, Mississippi
    Replied almost 2 years ago
    It is successful in Mississippi where I can buy nice properties for 30-35K. But when it comes to refinancing the homes I’m using a different strategy than a conventional mortgage mostly because of the high closing costs and the fact the houses are likely to be only worth 50-75K after they are rehabbed. I don’t knowingly buy houses that need more than about 5K worth of rehab. That means no active leaks on the roof, no bad foundations, no mold. When it comes to refinancing what I get instead of a conventional mortgage is a first place HELOC. Not many banks will give those for rental properties but Wells Fargo does.
    David Greene
    Replied almost 2 years ago
    HELOC’s are some of my absolute favorite financing vehicles. Primarily because you avoid the closing costs. Great point Susan.
    Chirag Harivadan Parikh Investor from San Jose, California
    Replied almost 2 years ago
    Hi David-Thanks for sharing this awesome article. At a minimum, it has opened my eyes on the alternatives. How to get the $120K initial cash is something I need to get creative and get more details. Also, as one person Bret pointed out here, one has to get a super low value property to make this strategy work. Isn’t this strategy used by Turnkey property sellers? Does this strategy also mean that one should know proper rehab folks as well. I have zero knowledge on rehabs and can easily get eaten up by what I think could be the real rehab costs to get a refinance loan and rent it out..
    Brett Jones Investor from Ellsworth, Maine
    Replied almost 2 years ago
    The core of this is idea the value add. You will be focusing on distressed properties with lower values, do to both the repair work needed, OR (this one is important I think) the inability of normal buyers to secure a loan to purchase. I have purchased 3 properties that were unable to be financed conventionally. Two were typical deals with workable but lower value add opportunity. The third project was a property that was very desirable, but had failed to close three times do to financing issues. I ended up with $90k or so of equity in that project after renovation, and a large enough lot for the future development of another structure.
    David Greene
    Replied almost 2 years ago
    You hit the nose on the head Brett. I look for properties very similar to what you just described.
    David Greene
    Replied almost 2 years ago
    You hit the nose on the head Brett. I look for properties very similar to what you just described.
    David Greene
    Replied almost 2 years ago
    *nail on the head
    David Greene
    Replied almost 2 years ago
    Hey Chirag, These are some very good questions. 1. Whenever you’re buying rental property, or investing in general, you should be striving to pay much less than the property will ultimately be worth. This isn’t new or original to BRRRR, but BRRRR does help you to take advantage of doing this successfully by pulling your money back out as opposed to leaving it as equity in the property. 2. Turneky property sellers wouldn’t do this, because this applies to those looking to hold a property long term. Turnkey providers buy it, fix it up then SELL it. When we BRRRR, we don’t sell it, we refinance and keep it. 3. Regardless of which strategy you use, you should absolutely find good rehab people. If you don’t have them, it makes it very difficult to become a good RE investor. In my upcoming book, I discuss various ways you can find good rehab people. You can find the link at the bottom of the article.
    Khurram Bashir Investor from Charlotte, North Carolina
    Replied over 1 year ago
    did not find link at the bottom of article how to find good rehab people
    Brett Jones Investor from Ellsworth, Maine
    Replied almost 2 years ago
    The ability to do the renovation work on a value add is super helpful (though does come at the cost of velocity). My current project is a 850sqft 2/1 foreclosure that was long neglected by previous owner(s). I purchased it for $30k using a standing line of credit. I’ll have another $25k or so into the project when it’s completed (funded by same line of credit). That $25k is nearly all material costs. I had a new heating system installed with the associated installation labor costs, and I had the floor refinished, but all other work I did my self. I had some structural repair work (floor joists and sub-flooring). I replaced all the supply plumbing and fixtures. I made upgrades and improvements to the electrical system. Every surface in the house has been refinished or replaced. All the appliances are new (including a washer/dry). And I’ve done simple landscaping. When complete (in 3-4 weeks) and I refinance the property, I’m expecting it to appraise in the $85k-$90k range. I plan on drawing 80% of value with a 15 year term (10y arm). I expect to rent the home out for $900 and calculate cash flow of $50. The additional money drawn out in the refinance (after paying back the standing line of credit) will be used to fund my next project that I currently own, adding value to that property with basically free money.
    Michael Wolffs from New York City, New York
    Replied almost 2 years ago
    I’m in the middle of a BRRRR project and stuck on the refi (or just fi, I didn’t buy on a mortgage.) The banks are not being as free as they once were on loans, especially on small commercial projects.
    David Greene
    Replied almost 2 years ago
    Hey Michael, sorry to hear that. Banks are often times the most frustrating part of the whole RE investing cycle. I always try to find out if they will give me the loan before I take on the project. Sometimes there isn’t time for that, and sometimes they tell you one thing but then it’s another later.
    Mark Hentemann Rental Property Investor from Los Angeles, CA
    Replied almost 2 years ago
    Thanks for this. BRRRR can be a good approach. I’ve done it both ways, but more than half the time, I choose to leverage that $100,000 from the outset by getting a loan. The reason I do is because buying with cash does not maximize the leverage potential of the $100,000 you committed at the outset, This is how I compare: Assumptions: you’ve got $100,000 cash, the bank lends at 75% loan to value; the rehab cost is 20% of building purchase value, but brings a 2.5x return on those value-add dollars. If, instead of buying a $100,000 property all-cash, you could have leveraged that $100,000 with a loan, and bought a $400,000 property. Following the original scenario, rehab costs would be 20% of original value, or $80,000, which would increase value by 2.5x rehab costs, or $200,000. You’d now own a property worth $600,000, a $120,000 gain. Results: in this scenario, you’ve spent $180,000 and made a return of $120,000. That’s a 66.6% return, compared to 49.6% by paying cash at the outset. Because I’ve done this, and often find myself wrestling with which approach to take, I wanted to look at the other scenario with that $100k. It’s not bad. Anyway, thanks for the post!
    David Greene
    Replied almost 2 years ago
    Hey Mark, You make a valid point. I didn’t include that in the article because the majority of investors have a particular market and project in mind when looking for something to buy. There aren’t a lot of people with two comparable deals, one for 100,000 and another for 400,000 that they have to choose between.
    John Zoulis Investor from Baltimore, Maryland
    Replied 5 months ago
    David , what is the difference doing the BRRRR Strategy or getting banks to finance 75% LTV of purchase price and also finance 100% of the renovation?Also the investor has to be careful the loan amount they get on the property because the banks looking on the debt ratio needs to be more than 1.25. that is if they want to expand and banks will ask for their REO schedule.
    Jason Fraser from Salt Lake City, Utah
    Replied almost 2 years ago
    Does. BRRRR work better with some properties types over others? Example 3 bed 2 bath SFR vs 2/1 or townhome / condos.
    David Greene
    Replied almost 2 years ago
    Hey Jason, It’s not so much about the property type. It’s more just the numbers. BRRRR is more of a lending strategy than anything else. It’s a way to recover more of your money at the end. The type of property, price of the property, etc doesn’t really come into play. Just the numbers-particularly the difference between how much you’ve invested and how much it’s now worth.
    Kunal Sarin from Aurora, Illinois
    Replied almost 2 years ago
    I recently purchased two single family homes in the Chicagoland area and plan to get both homes refinanced after the rehab is complete. My question is, how do you scale beyond 10 properties when using financing ? That is the Fannie May limit. I currently have loans on 5 single family homes. Are there lenders who can lend based on just the asset and rental value as opposed to how traditional banks do financing? Thanks.
    David Greene
    Replied almost 2 years ago
    Hey Kunal, Welcome to my world! It can be very frustrating, but still totally doable. You’re best options are: 1. Portfolio lenders who don’t need to sell the loan and therefore don’t need to conform to fannie/freddie standards. 2. Private money-borrowing money from people earning 1% on it at the bank and paying them more. 3. Commercial loans- I package up several properties at once and refinance them in a commercial loan, pull my money out, then go buy a package of several more. It’s BRRRR just on a bigger scale.
    Kunal Sarin from Aurora, Illinois
    Replied almost 2 years ago
    Thanks David for your reply. Do you have a recommendation for a Portfolio lender you may have used in the past?
    Raymond Y. from Jersey City, New Jersey
    Replied almost 2 years ago
    Noobie here. Is it possible to buy with a conventional mortgage, then after the rehab do another refi to take out the extra equity you get after the forced appreciation? If it is possible to do this, what difference is there between what I suggested and buy cash then refi after rehab?
    David Greene
    Replied almost 2 years ago
    Hey Raymond, Good question, and I feel it was answered well by both of the other comments. The short answer is yes, it’s possible. It’s just not as efficient.
    David Greene
    Replied almost 2 years ago
    Hey Raymond, Good question, and I feel it was answered well by both of the other comments. The short answer is yes, it’s possible. It’s just not as efficient. Reply Report comment
    David Greene
    Replied almost 2 years ago
    Hey Raymond, Good question, and I feel it was answered well by both of the other comments. The short answer is yes, it’s possible. It’s just not as efficient.
    Kunal Sarin from Aurora, Illinois
    Replied almost 2 years ago
    In my experience, if the seller is a bank or you’re buying a foreclosed/short sale property, in most cases, they will not accept a financing contingency and will require the buyer bring all cash to the table. Even when dealing with a private seller, an all cash offer makes it much more appealing and gives you greater leverage for negotiation.
    Bryan Drury Investor from Owensboro, Kentucky
    Replied almost 2 years ago
    Raymond, As David pointed out, making a cash offer is usually more appealing to a seller thus giving the buyer an advantage over financed offers.If you initially buy with a conventional loan and then refi after rehab then you have to pay for 2 sets of closing costs that are more costly than a cash closing normally used on the front end of the strategy. Either way will work just depends on your available resources. We have utilized the BRRR strategy long before Brandon Turner coined the name. The points of the strategy is to recycle your money fast, have less of your own money invested into the project, thus amplifying your returns. The key is getting the ARV of the property high enough, buying low enough, and holding rehab costs down so that you get all your money back when refinancing out.It works in our market vey well.
    Robert Steele
    Replied almost 2 years ago
    Some caveats. First of all, doing a cash out refinance isn’t free. There are refinance costs such as lender fees, attorney fees, title policies. Cash out refinance loans often have a higher interest rate. There are tax implications. The IRS does not allow you to claim the mortgage interest deduction for the portion of the cash taken out. A high ROI does not necessarily make for a good investment. Leveraging a property up to the hilt just so you can admire your high ROI is risky.
    Robert Steele
    Replied almost 2 years ago
    Some caveats. First of all, doing a cash out refinance isn’t free. There are refinance costs such as lender fees, attorney fees, title policies. Cash out refinance loans often have a higher interest rate. There are tax implications. The IRS does not allow you to claim the mortgage interest deduction for the portion of the cash taken out. A high ROI does not necessarily make for a good investment. Leveraging a property up to the hilt just so you can admire your high ROI is risky.
    David Greene
    Replied almost 2 years ago
    Cash flow is what determines risk. The actual amount you have leveraged isn’t as important. I routinely pull out more money than I paid for a property, “over-leveraging” but if the property is being rented for $1500 and my expenses are $1000, there isn’t much risk. No matter how you buy RE, there will always be costs, fees, etc. BRRRR is just a better way to get capital out of a deal to re-invest it. For those who have so much money they don’t need more capital, or those who don’t want to continue investing, BRRRR would be a lot more work than makes sense to do.
    Jerry Poon Real Estate Investor from Los Angeles, California
    Replied almost 2 years ago
    Where do people get unlimited loans from? This BRRRR strategy assumes you can find anyone who is willing to loan you money despite what you already owe.
    David Greene
    Replied almost 2 years ago
    I would’t say the BRRRR strategy assumes that. You’re going to have that problem no matter how you intend to put a loan on a property. And it doesn’t really matter what you owe on a property, what matters is how much equity you have-at least from the perspective of if you can get financing for it.
    Jerry Poon Real Estate Investor from Los Angeles, California
    Replied almost 2 years ago
    I see. So the BRRRR strategy is only limited to a few properties at a time?
    Nirmal Khanderia Developer from Leander, TX
    Replied almost 2 years ago
    Hi David, Very nice detailed article on BRRRR. Your analogy of doing the make up and fix the hair before taking a picture is great—never thought of that. I have done one BRRRR so far. Bought an SFR at 48K, added 22K of rehab – both funded with hard money. Took out commercial refi for 75K (75% of ARV of 100K). For conventional loan most of the lenders have a seasoning period of 6-12 months; commercial loan does not have this requirement. Property cash flows at $100-150 a month. What is great is that we have built an equity of 25K right from day one. Plan to do two BRRRR per year for next 5 years to build up a decent portfolio.
    David Greene
    Replied almost 2 years ago
    Congrats Nirmal!
    Trey Cartee from Boiling Spgs, South Carolina
    Replied almost 2 years ago
    Great article David! Newbie out of upstate SC. My original plan was to do several flips to build up cash, then buy a single family or Multifamily in order to do the BRRRR and pay cash. I have a couple of questions on the BRRRR Strategy. 1. how would you format with OPM to invest in BRRRR when you don’t have the funds up front? 2. At what point do you pay yourself?
    Christi Hawkins from Columbus, Ohio
    Replied almost 2 years ago
    Outstanding information!! Thank you for sharing
    Kat Horn
    Replied almost 2 years ago
    I’m curious if you deal with the issue of not being able to refinance – not because of the numbers on the new rental property – but because your overall debt to income ratio is not within the lender’s underwriting requirements? In other words, if you have a portfolio of multiple BRRR properties with low cash flows, so that your debt to income ratio is not very favorable. Does that affect your ability to re-fi the same way it affects your ability to obtain purchase money money mortgages?
    Kat Horn
    Replied almost 2 years ago
    Never mind, I overcame some laziness and read the previous comments and replies posted above. I believe I got my answer in your response to Kunal on October 9th. We have resisted the higher interest rates of portfolio or commercial loans, but this has left us with plenty of capital tied up in our current rental properties. Oh wellll….first world problems 🙂
    Kat Horn
    Replied almost 2 years ago
    Never mind, I overcame some laziness and read the previous comments and replies posted above. I believe I got my answer in your response to Kunal on October 9th. We have resisted the higher interest rates of portfolio or commercial loans, but this has left us with plenty of capital tied up in our current rental properties. Oh wellll….first world problems 🙂
    Kat Horn
    Replied almost 2 years ago
    Never mind, I overcame some laziness and read the previous comments and replies posted above. I believe I got my answer in your response to Kunal on October 9th. We have resisted the higher interest rates of portfolio or commercial loans, but this has left us with plenty of capital tied up in our current rental properties. Oh wellll….first world problems 🙂
    David Greene
    Replied over 1 year ago
    lol that is a great attitude kat. you made me laugh
    Frank Boet from Miami, Fl
    Replied almost 2 years ago
    The refinancing part is very difficult. If someone knows of a bank that does not require a mountain of paperwork to apply for a refinance, please share. I recently contacted TDBank to refinance a rental property that we own and we immediately withdrew the refinance request when we saw ALL the paperwork that they were requesting, and at the end there was no guarantee that my wife and I would get approved.
    Pierre A. from Jamaica, NY
    Replied over 1 year ago
    Great Article! Was referred here after tonight’s Webinar with you and Brandon how to buy your first rental in 90 days. Can I also increase my ROI by just putting less than the 20% down, lets say 3.5-5% assuming I still cash flow after expenses including PMI?
    Scott H.
    Replied over 1 year ago
    I too am interesting in knowing if one can avoid PMI going this BRRRR route. Is the PMI requirement based off of the loan amount or strictly LTV? If one was able to use ARV to boost the value 20% or more could you then turn around and refinance without PMI?
    Ray Seaman Rental Property Investor from Tallahassee, FL
    Replied 10 months ago
    Yes, PMI is based off of the loan amount. However, you will only pay PMI if you put less than 20% down on a property. A bank isn’t going to let you refinance a property with a loan greater than 80% LTV anyway, so PMI isn’t a factor.
    Ray Seaman Rental Property Investor from Tallahassee, FL
    Replied 10 months ago
    A couple other things I think are worth noting on BRRRRs: 1.) Use a 70% LTV refinance as part of your analysis as that’s what most banks, including local banks, will give a new investor. If you have a few years experience, maybe 75% LTV, and you may get lucky in finding a bank who will give you 80% TV, but just to be conservative in your analysis stick to 70. 2.) Finally, make sure in your analysis your property actually cashflows post-refinance. It’s easy to focus on getting your acquisition and rehab costs out from your refinance but forget about whether your rents will be able to support the new refinance loan. Use the BRRRR calculator here on BP to figure this out. Good luck!