Understanding the BRRR Method

On today's podcast episode I talk about the Buy, Repair, Rent and Refinance strategy commonly referred to as the BRRR Method. This is one of my favorite real estate strategies and one of the easiest ways that I know to create long term wealth with real estate. 

The Buy, Repair, Rent and Refinance Strategy was the method that I used to make my first million dollars in real estate. It has helped me, and many of my students become multi millionaires.

Ironically, out of all the real estate investing strategies that there are, it's the easiest strategy to employ for a beginner and requires the least amount of effort.

The BRRR Method consists of four components

• BUY
• REPAIR
• RENT
• REFINANCE
  

BUY

The first step is to find a rental property that would work using the BRRR Method. Your goal is to find a property that you can buy, repair, rent and refinance where all of the costs of the purchase and renovation of the property are covered. Once you locate a property, you purchase it using a loan from a private lender. I teach my students how to get private lender loans at my real estate training events. 

REPAIR 

The second step is to repair and renovate the property. We call this stage the "rehab" stage. Before you can rent the house to a tenant, you will need to make the property rent ready. How much work is required to make the property rent ready depends on the property. Some houses only need a new coat of paint and fresh carpets. Others require more renovation like updating the flooring, the kitchen, and the bathrooms. Some houses require major renovation like new roofs, central air conditioning, plumbing or electrical work.

In some cases you may be able to buy a property that is already rented (with a tenant in place). In this scenario you can skip the repairs because the house is already rented and does not need to be repaired. However, usually, for the BRRR Method to work, you would need to buy the property at a substantial discount to market value. And that means that most of the time the property would require repairs.

RENT 

The third step is to rent the property. You will need to have a tenant in place in order to be able to refinance your mortgage. The bank will want to see the amount of rent that the tenant is paying, and will want to verify this by getting a copy of the lease, and also by confirming that the rent is being deposited into your bank account. You would typically collect the first month's rent, last month's rent and a security deposit from the tenant when renting out the house.

REFINANCE

The fourth step is to refinance the mortgage to a lower interest rate fixed mortgage. In order to refinance the mortgage the bank will require an appraisal. For investment properties, banks will typically lend 75% of the appraisal value. A house that appraises for $200,000 would be able to get a mortgage for $150,000.  The goal with the refinance is to get enough money from the bank in the refinance to pay off the private lender and to cover the purchase price and the repairs plus all closing costs and other fees like points, interest, and insurance. Done correctly, (like in the example I used in this podcast episode) you can buy a house with no money down using the BRRR Method. 

EXAMPLE

On the podcast episode I spoke about a house that could be purchased for a purchase Price $80,000. Ass