The Best BRRRR Guide in the Galaxy

It’s officially fall here in Kansas City, and while the leaves change colors and temperatures drop, we pull our fleeces out of the back of the closets and introduce this word back into our vocabulary: “Brrrr!” You can picture it, can’t you? “Brrrr” is accompanied by a little shiver in your body as you rub your arms to warm them up and fold them across your chest to hold in as much heat as possible. But, what if “Brrrr” could actually mean something else? What if “Brrrr” was the key to take your real estate investing to the next level? I’m here to tell you that it is, and it can.

BRRRR is a real estate investing term that stands for “Buy, Renovate, Rent, Refinance, Repeat.” It’s an investment strategy that has been a phenomenal wealth-builder for real estate investors all over the nation, including myself. In this article, I will describe the strategy to you and give you my pointers for how to crush each step in the process and quickly be on your way to a successful career in real estate investing.

What Does BRRRR Really Mean?

I’ve already covered what the letters in BRRRR stand for: Buy, Renovate, Rent Refinance, Repeat. But what does it REALLY mean? BRRRR means you are able to invest in a property, add value to that property, and then get your invested cash back out so that you can go invest in another property. It’s a brilliant strategy that allows you to leverage financing to maintain cash in your pocket to keep investing. If you are interested in growing your wealth, building a portfolio of long-term rentals, and doing so quickly and efficiently, this is the strategy for you.

I have been implementing this strategy for my personal portfolio for over ten years and have watched it turn a small sum of cash into a multi-million dollar portfolio with hundreds of thousands of dollars in equity that provides for my family. I recommend it to active investors considering real estate investing, so long as you follow my advice below for how to do it successfully.

You Make Your Money on the BUY

The buy is arguably the most important part of the process. You make your money on the buy. Buy right, and you’ll do well with this strategy. Buy wrong, and you’ll be sorry, broke, and frustrated.

The first step to buying well is understanding your criteria. Where do you buy? What types of neighborhoods? What price point are you willing to purchase at or the all-in LTV (Loan to Value)? What rent do you expect to get out of the property after it’s fully-renovated? Understanding your criteria helps you evaluate a deal and know when to say “yes” and when to move on. You’ll get more efficient at evaluating a deal over time, but don’t rush it when you first start. It is important to understand what you’re buying and if it fits your criteria. The more specific you are with your criteria, the easier it will be to make a decision on how to move forward.

Understanding your criteria leads you to think about what the property will look like when it’s done. In this case, the end game is to do the BRRR strategy and refinance with little to no money of yours in the deal. Be thoughtful on how you expect to be refinancing and which lender you use. Have the conversation up front with your lender about what you are planning to do with the property. Some lenders will only refinance the property under certain conditions -- some require it to be rented, some require you to have owned it for a certain about of time. You need to know those requirements at the front end, so you can plan for them.

Remember that there are different ways to fund a deal, and it’s worth investigating each of them for yourself. You can (1) Buy with cash that’s your own, (2) Use a standard bank loan, or (3) Use hard money or private money. Of these three options, I’d choose hard money or private money as my first choice, every time. Although it is a little more expensive to use hard or private money (their interest rates are generally higher than a traditional bank’s), using hard money or private money builds in a couple of conditions that benefit investors--specifically newer ones. First, the hard money lenders will evaluate the deal for themselves, so you’ll get a second pair of experienced eyes on the deal itself. Second, this type of financing is generally faster and easier than a bank. Because they understand the real estate investment industry, they’re willing to fund some deals a traditional bank might not be comfortable with. Finally, I prefer this type of financing because hard money and private money lenders will often fund most or all of both the purchase and the renovation of your property.

RENOVATE with Clarity and Confidence

Once you’ve defined what deal you want, secured funding, and closed on the property, it’s time to get to work on the renovation. Go into the deal with a clear scope of work, and understand the cost and timeline of that work. Even if you’re not doing the work yourself, it is vitally important that you understand what all needs to happen. You can work with a contractor or do the work yourself, but either way, you need to be clear on exactly what needs to occur during renovation.

If you’re working with a contractor, do you best to get that contractor into the property BEFORE you close. Have a bid from your contractor in hand when you close, so you know your budget, who you’re working with, and are ready to get started the second the property is yours.

If you’re going to be doing the work yourself, make sure you factor in the work you are completing. It may not be worth it to take a project on that you aren’t efficient at. Yes, it might save you labor costs, but the time it takes you to complete a project inefficiently also has a cost. Make sure you understand the cost per day to hold the property and factor that into your decisions about which projects you handle yourself.

Since this is a property you plan to hold long-term, make sure you plan accordingly. Think about the way the property looks, the value you’re putting in for the amount of rent you’ll get back out. For example, what are normal finishes for properties in your area? Will renters be expecting granite? Or can you get away with formica? Weigh the value of the renovation items and only do the ones that will impact your property’s rentability. Something like finishing a basement may not be worth the cost, given that renters won’t necessarily pay extra for a feature like that. If you’re not sure what is standard for your area, take a look at comparable rentals in your area on platforms like Zillow or Trulia. Look at the pictures, look at the rent prices, look at the finishes, and make adjustments to your scope as needed.

Be sure to give attention and money to the areas of the home that are most valuable and make the most sense. This is going to be someone’s home, so think about where they’ll spend the most time and which rooms they’ll care the most about. I always focus on the kitchen and bathrooms because those are areas of a home where people spend lots of time.

Also, it’s best to deal with CAPX items on the front end. These are the big ticket updates that could come up as issues later in your ownership of the home (think roof, HVAC, etc). It’s best to work them into the front end of the deal, and update them while you’re already in the house doing renovations.

Many folks will have an inspection done at the beginning of the project so they can plan for the repairs, but it’s also nice to have one done at the end of the renovation, so you can verify that the work that needed to be done is truly done and it’s ready to go. You can work out a deal with some inspectors to do more of a high point inspection. Have them look at the bigger items only for half or less of the cost of a regular inspection. They’ll come in and verify all the expensive stuff is up to code and works well, so you’re sure you did a good job and are ready to start marketing for a tenant.

RENT your Property and Cashflow

When you think about starting to market for a tenant, try to get in the mindset of your future renter. They’re looking for a place to make a home, so make sure your property is clean and you get beautiful photos taken of it to use in your listing. First impressions are your only impressions with rental properties, so make sure yours is excellent.

If you’re self-managing the property, you need to understand the legal requirements in your area for rent collection, lease signing, security deposits, etc. before you get a tenant in the house. Your local MLS or state real estate commission is a great resource for understanding those laws. You also absolutely need to have a lawyer review your lease, so you know you’re covered and ready to go.

From your initial research during the buy-phase, you should already have a sense for what the property will rent for, but I’d recommend double-checking on sites like Zillow and Trulia to make sure nothing has changed in your area. I also use Rentometer to verify rental rates in the area for comparable properties. Make sure you’re considering size, number of beds and baths, condition, and area when comparing properties. In some areas, a few blocks can make a huge difference in rent rate, so if you’re not familiar with the area, checking these sites will help you understand the going rates.

If you use a property manager for your property, they will be able to help you with the rental rate, as well.

When using a property manager, make sure you thoroughly vet them first. Speak to references, and look on social media and their website, as well as 3rd party sites like Zillow and Trulia for other properties they’re marketing. You want to understand how they’ll be marketing your property, what their reputation is like for taking care of both properties and tenants, and if they have a good track record with their current client base. You need to feel comfortable with your property manager and truly believe they are someone you can trust.

Homes typically rent within 30 days of going on the market, so expect that and plan for it in your timeline and budget.

REFINANCE to Get your Money Back Out

In the BRRRR strategy, the goal is having the vast majority or all of your money back out of the deal. So, you want to get out of the short term funds you used to acquire and renovate the property and get into the long term funds. This gives you better cash flow, more money in your pocket, and this type of financing is more stable over the long term. If you used private money or a hard money loan, refinance with a traditional bank, and then pay back your original loan.

In order to refinance, your lender will need an appraisal. Prepare for that with an understanding of the comparable properties in the area and provide a scope of work for the appraiser. I highly recommend being on site, in-person with the appraiser and providing that information for them.

Finally, you need to understand if you’re going to hold the property in your personal name or in a business entity name. It’s worth noting that you can only do ten Fannie Mae mortgages in your personal name. If you’re married, you could split up the loans and each get ten, which would increase your opportunity up to 20.If you’re getting close to your 10 mortgages, you can always refinance those out into a commercial portfolio loan and then start again on your ten personal loans.

REPEAT until you Reach your Goal

Arguably the most exciting part of the BRRRR strategy is just how repeatable it is. Because you're able to get your cash out of the deal at the end, you can keep going and scale at a steady rate. I recommend having a long-term goal and understanding what that means for you each year. Understand how many properties you want to own and in which areas, so you can be faster to “yes” and faster to “no” with every opportunity that comes your way. Continue to have conversations with your lenders about what you’re wanting to do long-term, so they can understand your goals, and you can work with banks who truly have the capacity to help you where you want to go.

The BRRRR investment strategy is incredibly powerful, and now, with this advice for each step of process, all that’s left for you is to get CLEAR on your goals and take the next step FORWARD!