Intro to The BRRRR Strategy of Investing

While nearly everyone knows that Real Estate is a great investment. It is no wonder that there are so many tv shows on HGTV and other popular channels about flipping homes. It is not only a good way to make a solid income, but it is also kind of "trendy." People who have no construction experience believe that they can get into real estate, and that it will be easy. Coming from someone who has completed flips, when it comes describing to flipping a home, however, "easy" isn't a word that I would I would use. While the work is often extensive, often more extensive yet is getting the capital to make the project happen - not only one, but on repeat.

The BRRRR Strategy is one that allows investors to recycle cash, in order to continue to gain momentum on the value of their capital. The velocity of money is what will drive your business forward, or the lack thereof is what will leave you stranded in the dirt. So what is it?

BRRRR Stand for Buy, Rehab, Rent, Refinance, Repeat.

Okay, now that it's defined, what does it actually look like? Let's put a sample deal together as an example.

A motivated seller comes to you with a single-family home to sell. You negotiate and get it under contract for $30,000, and estimate that it will take another $35,000 to renovate. 

Purchase $30,000

      Rehab $35,000

Total Required: $75,000

Within 4 months, the property is ready and is then rented out $1250/month. Tenant is responsible for utilities. Based on the comps in the area, now 6 months after purchase, comparable sales on similar finished homes put your home value at approximately $120,000.

You go to your local banker you're working with, and ask to do a cash out refinance to roll this property into long-term financing. They tell you they can give you up to 75% of the equity in your home. 

$120,000 * 75% = $90,000 Cash Back to you at closing

$90,000 - $75,000 Required, means you now have a $15,000 profit. 

Not only that, but because they are "Loan Proceeds" and not "Earned Income" they are not taxed.

Pretty cool, huh? 

Well, that isn't all. You also now have a rental property. If you assume a 5% interest rate, on a 30-year long, before taxes and insurance each month, the mortgage payment is $483.14.

$1250 Monthly Rent - $483.14 Monthly Principal & Interest Payment = $766.86 Cashflow Monthly / $9202.32 / Year

As you can see, the BRRRR strategy can be a lucrative one for building and scaling your portfolio. 

What if you don't have the money to do the purchase and rehab initially? You have lots of options! 

Refer to our section for financing and hard money to learn more.