BRRRR Method

10 Replies

Hello BiggerPockets,

This is my first post. Yay me lol. My question is, How difficult is it to do the BRRRR Method if you want to use conventional or FHA financing for the 1st deal? In addition, how difficult is it to refinance an FHA loan? Any insight would be greatly appreciated.

Welcome to BP!

The Refinance part of the acronym is agnostic of loan type. As far as difficulty, it is neither more nor less difficult than refinancing any other rental property. Just remember though, if you go w/ an FHA loan, they are for homeowners. You'll have to live in the property that you're BRRRR'ing for 2 years (look around online to confirm the time frame) if you go that route.

 Good luck in your investing!

@Gerardo Dominguez Thanks for the reply. Do you think it would be a big deal if I bought it as an owner occupant but rented it during that time? Me and my fiance have a home but it's in her name I want to buy another home going the FHA route but put it in my name and then rent it out until we decide to sell or refinance in a few years.

@Brandon Higdon , it is considered mortgage fraud if you say you're going to live in it but do not intend to do so. Mortgage fraud is typically charged as a felony. I'd skip that route.

@Brandon Higdon

I had the same question!!! (And, actually, I probably posted it around the same time you did, just not as succinctly....and it was my first post,too.... Yay me! Ha!

I look forward to reading any comments from this smart community!

Do I get 2 different lenders, or can I refinance with the same small bank that gave me the initial loan?

Thanks,
Heather

Originally posted by @Mindy Jensen :

@Brandon Higdon, it is considered mortgage fraud if you say you're going to live in it but do not intend to do so. Mortgage fraud is typically charged as a felony. I'd skip that route.

Makes sense. Thanks for the advise. So would need to do some creative financing to get started or would tapping into the equity I have in my current home be a better way to approach getting started. I love the BRRRR method and I think it fits my investing style but I just want to get started but not sure how to come up with the initial financing.

Any help would be greatly appreciated.

Could you rent out the home in her name and purchase this one then move in? I believe you have to occupy for one year...

@Brandon Higdon Don't underestimate the difficulty of doing a 100% BRRR deal right now - it's difficult to impossible in many markets and the ones where it is feasible have other challenges.

You need either a steep, steep discount at purchase or dramatic (as in angels singing) appreciation to get all capital out on the refi.

Sure, there's edge deals in some markets, but doing a 50% BRRR refi can still be a good outcome for you!

@Justin R. thanks for the insight. By that 50% number do you mean that I will only be able to probably get 50% of the money that I put into the deal?  In the long run I will eventually have to sell a property in order to continue doing deals using this method because if I only keep getting half I will eventually run out of money. If am missing something please let me know. Again thanks.

@Brandon Higdon Yes - by "50% BRRR" I mean when one refinances, one gets 50% of the total capital invested. That includes downpayment plus any renovations. And, yes, that means you'll have to keep coming up with more capital in order to grow your business. This is likely still a very good outcome - it means you increased your net worth by some substantial amount.

I won't claim to predict what you'll be able to do in your market, but write down the math and I think you'll see you need to be able to buy far, far below what a bank will consider "market value" in order to make it work repeatedly.  That and, for a new investor, it's very likely you'll spend much more than expected if you embark on a rehab.   

I don't mean to dissuade you from trying to do it. You'll hear of examples where people claim to have done it. If you have access to FHA or VA loans, it's probably easier to pull off a 100% BRRR on your first property (but not subsequent ones). I'm just saying it's very hard and it requires either tremendous luck or lots of skill and work. First time investors are unlikely to have either.

You'll likely lose money or break even on your first rehab project, but you'll learn way more than you can imagine.  That's why everyone preaches the "Take Action!" mantra -- find the best deal you can, do as well as you can, make sure you've got others to reach out to for advice, and make sure you can live to fight another day.

Good luck!

Originally posted by @Brandon Higdon :

@Gerardo Dominguez Thanks for the reply. Do you think it would be a big deal if I bought it as an owner occupant but rented it during that time? Me and my fiance have a home but it's in her name I want to buy another home going the FHA route but put it in my name and then rent it out until we decide to sell or refinance in a few years.

 Yes--it is a big deal and carries significant penalties.

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