How to BRRRR (buy, renovate, rent, refinance, repeat)
What is the BRRR?
The BRRRR is a real estate investment strategy that essentially allows you to invest with “no money” - in this case, you do require the funds to invest or require the ability to raise the funds to complete the process, but upon the completion of this strategy, you have the ability to get back the money you put in, therefore, owning real estate for $0. As the guru’s would say, this strategy allows you to get free houses or properties.
B = Buy
First R = Renovate
Second R = Rent
Third R = Refinance
Fourth = Repeat
What are the steps:
Fixer upper or force valuation: find a property that either requires work or that you can force appreciation. For example, find a property that you would think of as gross, smoker house, hoarder house, disrepair, neglect, outdated, etc… or find a property that is in good condition but that you can force appreciation, finding a method for increasing its value such as renovating a basement, adding a secondary suite, or similar.
Go conditional: once the property is located, write an offer to purchase with a conditional period of say 10 days to allow you to properly execute this process. Typically I had a condition that states “Purchaser reserves the right to x business days for due diligence, satisfactory to the sole and absolute discretion of the buyer.” Under terms, I also add: “Purchaser reserves the right to walkthrough with 24 hours notice.”
Construction Quote: Once the property is conditional, it’s time to plan the construction, walkthrough the property and clearly state your vision, what are you going to do for renovations, what’s your design, are adding any form of forced appreciation? Take note of it, then have a few contractors (I always recommend three) walkthrough the property and supply you with quotes for the construction.
Verify your numbers…
What is your estimated value upon completion - this is known as an ARV (after repair value), obtain this from your realtor.
Determine your renovation costs
Determine your soft costs, things like holding costs, legal fees, etc.
Do the math - ARV x 0.75/0.8 (depending on your LTV) - (minus) purchase price, renovations & soft costs. If the balance shows as negative, it means you’re leaving money in the property, if it shows 0 that means you’re leaving no money in the property and thus, a successful BRRR, if it shows an amount above $0 it means you’ve not only completed the BRRRR but you’re also getting extra money (the ultimate success).
As-Is Appraisal: this appraisal will tell you how much the property is worth today, regardless of your purchase price & will be required for funding.
As-Complete Appraisal: this appraisal will tell you what the property will be worth upon completion... although you’ve got an ARV, an ARV is not sufficient for lenders, therefore, an appraisal is also required and as
Apply for your mortgage, get approval, remove conditions & begin…
Complete work: Complete your renovations in full.
Rent (if applicable)
Refinance - apply for a brand new mortgage, once you have an approved mortgage, the new mortgage would pay out the existing debt and the difference between your old mortgage / debt and you refinance mortage amount will be deposited as “cash” in your account. Thus, you can use the good debt for future purchases, or anything you desire.
It really is that easy. For a much more detailed explanation, please feel free to reach out to us directly and we can expand on the individual steps if needed.
