Tips for Investing in real estate (BRRRR house hack)
BRRRR method stands for Buy-Rehab-Rent-Refinance-Repeat used by savvy investors making money out of undesired off-market real estate deals.
Being successful at BRRRR is more about finding the right people rather than the right off-market deal, and to discover quality off-market properties that will make you money, you need to know the right people.
By George Nicola (Expert Stager)
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If you’re looking for a way to get into real estate investing but don’t know where to start, the BRRRR investing method could be for you. With this method of investing, you can earn several streams of passive income as a side hustle or as your main form of income. Here’s what you need to know.
Buy Renovate Rent Refinance Repeat (BRRRR) is an actual investing house hacking method not only for genuine and savvy investors. However, ordinary people with a bit of research, structured approach, and consistency can dab into this world too and create a valid form of real estate income.
George Nicola (Expert Stager)
What is the BRRRR method?
Also known as “House Hacking,” the BRRRR (Buy Renovate Rent Refinance Repeat) method is a real estate investing strategy that involves four steps: buy, rehab, rent, refinance, repeat. Meaning, buying a distressed property to flip and rent out, then cash-out refinancing to secure funds for other projects.
How does the BRRRR method work in real estate?
- Buy – Purchase a distressed, probate or foreclosed property in pad shape the same way you would purchase a conventional home. These properties are often cheaper and in run-down condition. A good place to find such is an auction list like this one.
- Rehab – Depending on the property’s condition, you may need to perform intensive repairs and renovations. You’ll ensure the safety and structural integrity of the home as well as make aesthetic improvements.
- Rent – Once the property is ready, you’ll determine a fair price point and rent out to tenants to earn a monthly cash flow.
- Refinance – Cash-out refinance to access the equity in the home. By replacing your existing mortgage for more than you owe on the property, you can get cash on hand.
- Repeat – Put this cash towards other investment projects. Repeat the cycle.
How do you know if Buying to renovate houses is right for you? We have an extensive article that you can read.
Pros and cons of the BRRRR method
The BRRR method is one of the House Hacking methods and can be a savvy strategy for both novice and experienced investors. Before deciding to go with the BRRRR, consider the pros and cons.
Pros of BRRRR method
- Secure a passive income
- Build and diversify an investment portfolio with less money invested
- Build equity
- Tax advantages
Cons of BRRRR method
- Lots of patience and work required (rehab stage and waiting for the property to build equity)
- Not a traditional purchase, may need to take out loans with unfavorable terms
- Need to find good, trustworthy tenants
BRRRR and off-market properties (house hacking)
To be successful at BRRRR investing, you have to work with suitable properties. One way to find great properties is to look for off-market ones, and in this article we have shared the Secrets of House Hacking.
What does 'off-market property' mean?
An off-market property is any property that is not listed on the multiple listing service (MLS) and not marketed publicly. They will not be visible to anyone not actively seeking them out.
What properties are off-market?
Any property can be sold off-market: single-family, multi-family, condos, duplexes, apartment complexes, luxury homes, and more.
Why do people sell off-market?
People sell off the market for privacy reasons. For example, an owner of an apartment building is looking to sell. If tenants begin moving out, the property wouldn’t appear to be well-performing and would have more trouble selling. Selling off-market also means narrowing the pool to serious and qualified buyers only.
When the property sells off-market
You’ll proceed through the closing process the same as you would with a traditional listing. You’ll negotiate, enter into a contract, and follow the same procedures with an inspection, lender approval, etc.
How to find off-market properties
Everyone has the same access to the MLS and sites like Zillow. To find quality off-market properties that will make you money, you need to know the right people. Known as the “Core Four,” you will assemble a team of a deal finder, lender, property manager, and contractor.
Being successful at BRRRR is more about finding the right people rather than the right deal. You’ll work with your deal finder at the beginning of the process – either a real estate agent or a wholesaler.
This person will be resourceful and have contacts to find you off-market properties. They should look for properties with a lower average of days on the market with high price points.
A good rule of thumb is to only go after properties that will bring in monthly rent payments of 1% of the purchase price.
These should not necessarily be agents that exclusively work with investors because the truth is that it is a lot of work, and many do not see it as worth their time.
The bottom line is that they use their resources and contacts to go after properties not offered to everyone.
Once you line up this person, the rest of the core four should fall in place.
Is BRRRR good for first-time buyers?
As with any investment, there is a certain amount of risk involved. This isn’t a bad thing, but there could be a learning curve if you’re a first-time buyer. You may not fully understand the ins and outs of the transaction if you haven’t been through the process before.
How long does it take to complete a BRRRR project?
A realistic goal could be to complete a BRRRR project within 4-12 months. This gives you time to renovate, rent, and build up equity. Depending on how severely distressed the property is, you may need more time for the repairs. The faster you go through the process, the more profitable it will be.
Average earnings: BRRRR method example
BRRRR has a snowball effect and high return on investment. As you build your portfolio, you earn monthly income on all of those properties. Over time, this can amount to quite a lot. Take this BRRRR method example:
Say your mortgage payment is $800, and you charge $1,500. Without any other expenses, your cash flow is $700 per month. Holding these numbers the same for five rentals and you can expect $3,500 per month.
Can you live in the BRRRR property?
This is your property to do with as you choose. So if you need to live in it for some time, the choice is yours. It’s important to note that there are different tax implications for primary residences versus investment properties.
What to do when you buy off-market property for BRRRR
This is when your core four will come into play. Your lender will secure your financing for the deal, and once you’ve closed, you’ll work with the contractor to perform the renovations. When the home is renter-ready, the property manager will handle the day-to-day with tenants.
Sell BRRRR with a competitive advantage
When you rent or sell your BRRRR, a great way to advertise is through Virtual Staging. This tool allows potential renters and buyers to explore the property before visiting in person.
Doing so opens you up to a broader set of consumers and makes you a viable option for those who may be can’t attend in person. When it comes to selling, the easier you make it for people, the better your chances.
What to do before you buy if you're selling your off-market property
Before you jump headfirst into your next BRRRR investment, you’ll need to do your research. Look for the following in potential new leads:
- Research population data to see where people are moving
- Look for healthy economies where there are multiple sources of employment
- Emerging markets
Key takeaway on BRRRR house hacking.
- The BRRRR method involves buying, renovating, renting, and refinancing properties to purchase more properties. This can be a profitable strategy but requires time and patience.
- Investors can look for off-market properties to purchase listings not advertised to the public.
- To be successful at the BRRRR method, investors should assemble their “Core Four” to help find deals, secure financing, renovate, and manage their rentals.