The BRRRR Strategy Explained: How Real Estate Investors Build Wealth

The ‘BRRR’ method is one of the most popular strategies for real estate investors. BRRR is the acronym for the buy, rehab, rent, refinance, and repeat method. This strategy is a popular choice for investors early in their careers who want to build their portfolio of rental properties quickly. The focus of this strategy is on buying, renovating, renting, and refinancing properties to facilitate further property investments.

Most investors choose the BRRRR method to enhance their cash flow. This real estate strategy is like fix-and-flip properties (also known as flipping) but focuses on long-term appreciation through renting rather than selling.

At Privy, our LiveCMA and Investor Activity data give you a 360-degree market analysis solution for investing in rental properties. Automate your deal searches, while running hassle-free comp analysis to find the best rentals. You can even find and partner with investor focused real estate agents on our site, if needed. This article takes an in-depth look at the BRRRR strategy with advice on how to use this method to build your real estate wealth.

What is the BRRRR Strategy in Real Estate?

The Buy, Rehab, Rent, Refinance, and Repeat (BRRRR) method is a real estate strategy that focuses on renovating properties (distressed properties or properties with room for value appreciation), renting them out, and cashing out by refinancing to purchase other properties. This strategy is effectively a repetitive cycle to enable investors to build their portfolio of rental properties.

Investors looking for long-term rental properties are best suited to the BRRRR strategy as the property’s appreciation is an additional benefit on top of generating passive income. The BRRRR method is often compared to house flipping as both focus on renovating properties to improve their market value. While flipping focuses on generating profits by selling the property, the BRRRR method creates profit by renting the property long-term. 

While house flipping is arguably a faster way to generate wealth, the BRRR strategy comes with the long-term benefit of property appreciation and the short-term benefit of passive income. Both methods will empower investors to move to their next property and build their portfolio. 

Pros and Cons of the BRRRR Method

Like any investment strategy, it’s important to understand the pros and cons of the BRRRR method. This strategy is popular with real estate investors entering the industry and who want to prioritize long-term passive income. It’s not a suitable real estate investment strategy for everyone as it requires significant commitment and can have high up-front costs.

Benefits of the BRRRR Strategy for Real Estate Investing 

Are you considering the BRRRR method? These are five benefits that make the BRRRR method more attractive than other strategies like house flipping.

• Passive income: The BRRRR method is popular for real estate investors seeking to generate passive income and diversify their investment portfolio. This passive income can be used to invest in other properties or for personal wealth generation. 
• Wealth building: This strategy enables you to make an initial investment in one property and leverage it to grow your portfolio by using the property’s equity and rental income. 
• Continuous equity: Conducting repairs and renovations to a property adds value, continuing to build its equity and improve its refinancing potential. The BRRRR method can help investors reduce their monthly mortgage payments and access lower interest rates when refinancing a property to fund additional investments.
• Scalability: The BRRRR strategy is essentially a repeatable method that enables investors to quickly scale their portfolios. The five steps are applied to every property with the investor able to apply the lessons they learned from the previous property to the next investment.
• Return on Investment: This method can secure investors a consistent cash flow and a high return on investment, particularly for property types that attract high-quality tenants. The BRRRR method enhances the potential of a property to generate positive cash flow.

Cons of the BRRRR Strategy for Real Estate Investing 

The BRRRR method isn’t for every investor. Like any investing strategy, the BRRRR method has its drawbacks that are important to consider before purchasing a property.

• High investment cost: The initial costs can be a barrier to utilizing the BRRRR method due to the need for upfront capital to purchase and renovate a property. Investors will need access to enough capital for the property’s down payment, renovations, and other costs such as utilities and taxes.
• Identifying profitable properties: Not every property is suitable for the BRRRR strategy. The goal is to identify a property with strong renovation potential that will also generate significant rental income to ensure positive cash flow. At Privy, our rental calculator, and integrated rental data helps you accurately analyze cash flow and identify profitable rental properties using our integrated LTR calculator for passive income forecasting. 
• Long-term commitment: The BRRRR method isn’t for every investor as it requires significant commitment, both of an investor’s time and their capital. Renting adds an extra layer of commitment with investors needing to screen tenants, maintain their properties, and deal with any issues that might arise.

The Five Stages of the BRRRR Method of Real Estate Investing

The Buy, Rehab, Rent, Refinance, and Repeat (BRRRR) method is a step-by-step strategy to build wealth and grow your rental property portfolio. Many investors choose this strategy to turbo-charge their portfolio and cash out investments to purchase additional rental properties.

1. Buy Your Rental Property

The first step of the BRRRR method is to buy a property that needs repair and renovation. Not all these properties will need major repairs. A distressed property may be a foreclosure property or one that has been vacant for an extended period. 

The benefit of purchasing a distressed property is that they’re often sold below market value (BMV) and their listed price may be reduced to reflect the amount of work required to make the property livable or market ready. Investors should use the 70% rule to make a profitable offer on a distressed property. This strategy determines that investors should not make an offer that is more than 70% of the property’s after-repair value. 

Is this property your first investment? Read our guide on ‘mistakes to avoid when buying a rental property’ for more advice on how to build a successful portfolio. 

For a BRRRR strategy, the location of your chosen property is crucial for maximizing its appreciation and long-term value. Focus your search on areas and neighborhoods with upcoming developments and growing demand. These emerging markets have a higher appreciation potential and often have properties available at a lower cost for investors with limited investment capital.  

Investors need to determine how they’re going to finance their property. The BRRRR strategy focuses on distressed properties, or properties with room for value appreciation, and there are multiple options investors can use to finance their purchase if they don’t have cash readily available. Investors with a good credit score may be able to take out a mortgage on the property if they can afford a higher down payment. It’s also possible to take out a hard money loan as a short-term financing option, while accounting for its higher costs and risks.

2. Rehab the Property 

The focus on distressed properties means that investors have to rehab the property to increase its value. In some cases, this rehabilitation may be required to make the property market-ready or livable. The extent of this work will vary depending on the property type from cosmetic fixes to structural improvements and retrofitting. These improvements will increase the likelihood of the property being rented and will enhance its value to generate a higher rental income. 

Investors need to accurately budget and plan for their improvements to ensure they don’t overspend, while also not ignoring easy fixes that could boost the property’s value. Investors with a limited budget should focus on improvements that make the property safe and bring it up to code. Additional improvements like updating the kitchen and installing energy-efficient windows can be done by investors with more flexibility in their budget. 

This stage of the BRRRR method is where investors will spend most of their capital. Investors can work with a contractor or tradesperson to carry out improvements that will make the property attractive to potential renters without overspending on elements that may not enhance the property’s value.

3. Put the Property on the Rental Market

Once your improvement works are completed, it’s time to put your property on the rental market. Working with a real estate agent can ensure you price your rental property in accordance with its value and the local market. Investors should focus on finding high-quality renters with a good credit report and positive references to minimize risk and ensure long-term cash flow.

Your property will need to have tenants actively renting it before you can refinance it. Prioritize potential tenants with a steady income and a history of on-time payments at previous properties to reduce your risk of non-payment. It’s possible to hire a screening company to check your potential tenant’s background before you offer them the contract.

4. Refinance Your Current Property

The third ‘R’ in BRRR is for refinancing. The purpose of this step is to replace the original mortgage on the property with a new one with more favorable terms. When refinancing a property with a new mortgage worth more than the previous balance, they effectively ‘cash-out’ by receiving the difference in cash. 

The purpose of refinancing should be to access capital to fund the purchase of another distressed property to repeat the BRRRR method. It’s worth noting that investors will need to have owned the property and have tenants renting it for at least several months before refinancing.

Shop around for the best cash-out refinancing option with competitive terms. You’ll need to ensure you meet the mortgage requirements, including having sufficient home equity, proof of rental income, and a qualifying debt-to-income ratio. Investors will also need to pay for an appraisal of the property.

5. Repeat with Your Next Property

After securing capital by refinancing your property, it’s time to repeat the same process with your next rental property. As you go through the BRRRR method again, consider the lessons you’ve learned and reflect on any mistakes you might want to avoid this time. 

Using the BRRRR Method for Rural Real Estate Investors 

The BRRR method is suitable for most types of investors who have the capital to make the necessary down payment on the first property and who want to invest in rental properties. Many investors choose the BRRRR strategy as it can build equity, generate passive income, and helps to diversify investment portfolios to minimize risk. 

If you’re a rural real estate investor, the BRRRR method might be the key to unlocking the potential of your portfolio. Many rural areas are posed for gentrification and development as demand continues to rise for rental properties, including single-family units. Rural neighborhoods are often more accessible to investors than urban areas, giving you a higher potential for significant returns and property appreciation. 

The key to mastering the BRRRR strategy is to identify undervalued properties and make the necessary renovations to increase their value. It’s crucial to understand the local market with Privy helping investors connect with real estate agents with neighborhood-level data to better understand the local economy.

If you’re using the BRRRR method in rural areas, it’s important to consider local regulations and potential zoning changes that may impact the property. The property’s accessibility and proximity to amenities will also determine the type of tenant you’re likely to attract and the property’s long-term value potential. Rural areas close to urban towns and cities with good transport links are likely to attract high-quality tenants with professional careers.