TABLE OF CONTENTS

    Read on to learn more about BRRRR loans and explore how this approach can open doors to lucrative opportunities. 

    KEY TAKEAWAYS

    • The BRRRR real estate method involves buying, rehabbing, renting, refinancing, and repeating to grow a real estate portfolio.
    • This strategy leverages property appreciation, rental income, and refinancing to fund subsequent investments.
    • Pros include increased cash flow, equity growth, portfolio scalability, forced appreciation, and tax advantages.
    • Cons involve market risks, renovation challenges, financing issues, tenant risks, and the need for high initial capital.

    What Is the BRRRR Method?

    BRRRR stands for buy, rehab, rent, refinance, and repeat. The BRRRR real estate investment method is a strategy investors use to build a real estate portfolio and maximize returns by following a systematic cycle. It depends heavily on your ability to rehab the property to increase its value, rent it out, and refinance. 

    With the property’s increased value through renovations and successful renting, you refinance the initial mortgage. This lets you pull equity from the property, providing additional funds for future investments. Once you refinance your investment property, you can use the funds to purchase another investment property and repeat the process. 

    How the BRRRR Method Works

    The BRRR method offers a predictable and reliable approach to property investment, allowing you to strategically grow your portfolio and wealth. Let’s look at how the BRRRR method works to help you determine if it’s something you might want to try: 

    Buy

    First, you’ll need to purchase a property. This involves market research to identify areas with growth potential, amenities, and high demand. You should also set a budget to ensure the property aligns with your investment strategy. 

    Rehab

    Once you’ve secured the property, the next step is to increase its value through improvements like rehab or renovations. Focus on renovations that add value to the property, including aesthetic and functional upgrades that appeal to potential tenants. 

    Be mindful of your costs during this process. Opt for improvements that offer a good return on investment to balance the upgrade’s impact on property value and overall expenses. 

    Rent

    After successfully rehabilitating the property, the focus shifts to renting it out. You’ll need to set a competitive rental price based on the local market. Research similar properties in the area to determine an attractive yet profitable rate. 

    Tenant screening is also important. Background checks, rental history, and references are crucial to ensure reliable and responsible occupants. 

    Next, decide on whether to manage the property yourself or hire professional management services. Efficient management can help you maintain positive cash flow. Still, it’s up to you to decide if it’s worth it to handle tenant relations yourself or pay another company to do it for you based on your existing cash flow and financial goals. 

    Refinance

    With the property now generating income, you can optimize your financial strategy through refinancing. Schedule a property appraisal to determine its current market value. This valuation will play a role in refinancing, telling you and lenders what the property is now worth. 

    Explore different loan options and terms. The goal is to secure a favorable refinancing deal that aligns with your investment goals. Then, cash-out refinance the property to pull out equity and leverage the increased value. You can also refinance for home improvements to further increase the value of the investment property. 

    Repeat

    The repeat part of the process involves scaling your investment portfolio and replicating your success. To make the most of the BRRRR method, analyze the outcomes of your first cycle. Learn from successes and challenges to refine your strategy in the future. 

    Repeat the BRRRR cycle with another property. Use the funds from refinancing to gradually scale up your real estate portfolio. You can also consider diversifying your investments by exploring different property types or locations. This helps mitigate risks and enhance overall portfolio stability. 

    Pros and Cons of the BRRRR Strategy

    As with any investment strategy, the BRRRR method has its own advantages and challenges. Understanding these pros and cons is crucial for investors looking to harness the full potential of this real estate investment approach. 

    A person in a suit passes a model home over to another person in a suit.

    Pros of the BRRRR strategy include: 

    • Increased cash flow: The BRRRR method is designed to generate a steady income stream through renting out properties, providing investors with positive cash flow. 
    • Equity growth: With strategic renovations, the value of the property increases, allowing investors to pull out equity during the refinancing phase and reinvest in additional properties. You can also use home equity loans to pull equity from investment properties. 
    • Portfolio scalability: The repeatable nature of the BRRRR cycle enables investors to scale their real estate portfolios rapidly, diversifying and expanding their investments. 
    • Forced appreciation: Through targeted renovations, investors can force appreciation, positively impacting the property’s value beyond market trends. 
    • Tax advantages: Real estate investors may benefit from various tax advantages, such as depreciation deductions and interest deductions on mortgage payments. 

    Cons of the BRRRR strategy are: 

    • Market changes: Changes in the real estate market can impact property values and overall rental demand.
    • Renovation challenges: Renovations can be time-consuming and may encounter unforeseen challenges, potentially delaying the renting and refinancing phases. 
    • Financing issues: Securing financing for both the initial purchase and refinancing can be challenging, particularly for those with limited resources or less-than-ideal credit. 
    • Tenant risks: Dependence on rental income introduces risks associated with tenant turnover, property damage, or non-payments. 
    • High initial capital: Investors need sufficient capital for the initial property purchase and renovations, making the BRRRR strategy less accessible for some individuals. 

    BRRRR Method Alternatives

    While the BRRR method offers a powerful approach to real estate investment, it’s essential for investors to be aware of alternative strategies and financing options like non-QM loans that better align with their goals. One alternative is the use of debt service coverage ratio loans. 

    DSCR is a financial metric that determines a property’s ability to cover its debt obligations. DSCR loans consider the property’s rental income in relation to debt payments. Unlike traditional mortgages, these loans focus on the property’s income-generating potential rather than the borrower’s personal income, making them a viable option for investors with limited personal income. 

    While the BRRRR method starts with one property and, through rehab and refinancing, it lets you purchase another property, the DSCR loan strategy can help you purchase two properties at once. Here’s how it works: 

    1. Acquire two single-family homes using DSCR loans.
    2. Use rental income generated from the properties to pay down the mortgages.
    3. Build equity as the homes appreciate in value.
    4. Tap into the equity every four years using a cash-out refinance and borrow the amount the homes have appreciated. 

    This method allows you to fund more down payments for more properties financed through DSCR loans. If appreciation continues at a predictable rate, you can continue to repeat this process every year to accumulate more investment properties and grow your wealth. 

    Other alternatives to the BRRRR method include: 

    • House hacking: House hacking involves purchasing a multi-unit property, living in one unit, and renting out the others. This strategy allows investors to use rental income to cover mortgage costs while simultaneously building equity. With this method, you can cover or offset living expenses with the stream of rental income you generate. However, like the BRRRR method, it involves managing rental units while residing on the property. 
    • Fix and flip: The flip and fix strategy is similar to the BRRRR strategy. However, rather than renting out the property, you sell it. The profit generated from the difference between the total investment and the sale price can then be used to invest in a new property. Many investors may prefer this method if they’re looking for a quicker return on investment and want to capitalize on potential market appreciation. Plus, with no tenants, they don’t have to become a landlord or hire a management company. 
    • Short-term rentals: Short-term rentals involve renting out a property for brief periods, typically on a nightly or weekly basis. These properties can include single-family homes, apartments, or vacation rentals. To attract short-term renters, the property is usually fully furnished and equipped with amenities before it’s listed on platforms like Airbnb or VRBO. Managing short-term rentals requires tasks such as handling bookings, coordinating check-ins and check-outs, cleaning between guests, and responding to inquiries. Some choose to hire property management services for these tasks. 

    Wondering which option is right for you? Download the Griffin Gold app to manage your finances and find the right investment property loan based on your unique circumstances. 

    Start Building Your Real Estate Portfolio

    The BRRRR method offers a systematic approach to growing your real estate portfolio, but it’s essential to be aware of the potential pros and cons. This method isn’t for all types of investors because it involves becoming a landlord and renting the property out. But, even if this method isn’t right for you, plenty of alternatives are still available, such as DSCR loans. 

    Take the first step toward investing in real estate with Griffin Funding. With our commitment to personalized service and innovative financing options, Griffin Funding is a trusted partner for investors. With our assistance, you can use financial strategies to build a diversified and successful real estate portfolio over time. Contact us today to learn more or apply for a loan online.

    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.