How to Take the BRRRR Strategy to the Next Level with a 198-Unit Apartment Building
The buy, renovate, rent, refinance, repeat method (BRRRR) can be very effective to grow your rental portfolio if you implement it properly. This method works for single family and small multifamily deals—and it works on larger properties as well. In today's video, I am going to show you how I used the BRRRR method to take my real estate investments to the next level.
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The only way to make the BRRRR strategy work is to find the right deal. The property has to need a "face lift." Perhaps the kitchens are dated, the windows are old, the carpets are damaged, the bathrooms need updating, or the heating system needs replacement. But the key factor is that the property has to have good "bones," meaning it doesn't need structural repairs and it isn't becoming functionally obsolete. It's just the ugly duckling. This is where the BRRRR strategy becomes super valuable. You find a property in a good area with a good structure that simply needs some cosmetic repairs. Those cosmetic repairs are predictable and add value to the rents you will get once you lease it out. With that increase in rents, the property value goes up, which allows you to refinance. It's a fairly simple equation, and it can be scaled up on larger deals.
Related: Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment
We found a deal in North Carolina that fit the equation. The kitchens were dated, floors needed replacement, the exteriors were drab and dated, there wasn't any landscaping on site, and the property didn't have any amenities like a playground or pool. On top of that, the vacancy was high and the units that were leased were rented for around $140 per month below the market rent. By adding an average of $140 per month, per unit, we increase the yearly revenue to about $330,000 per year. Notice that we didn't increase expense; we just did renovations. By doing this, we're increasing the cap rate that will justify our refinance.
The creative part of these types of deals is figuring out how you will finance the renovations. On this project, renovations will cost around $8,000 per unit. We will get the money for this by using equity, investors, and loans—$8,000 x 198 units at 6% debt cost will come in at $480 per unit per year or $40 per month. In a nutshell, we pay $40 per month to renovate each unit to make $140 in additional rent, which yields us $100 in cash flow per unit per month. This adds up quickly on larger deals, as $100 x 198 x 12 = $237,000 per year. Once we achieve stability and renovate all 198 units, we will refinance the short term loan and pull out some of our investor's capital to return to them, which increases their ROI on the project. Watch the video for a full breakdown of the numbers on this one.
The BRRRR method is simple if you apply it properly. It works if you are just starting out and you're doing smaller multi-unit family properties or if you're looking for a way to elevate your portfolio to the next level. Be sure to watch the video to hear all the details on this deal!
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