Flipping vs. BRRRR: Which Strategy to Pick?
Are you looking to invest in real estate but don’t know where to start?
Are you overwhelmed by all the options available and unsure which strategy is best for your situation?
It can be intimidating to enter a new realm when it comes to investments because there’s always the fear of getting it wrong or making costly mistakes.
In this article, I’m going to guide you through two of the most popular strategies out there – flipping and BRRRR (buy-renovate-rent-refinance-repeat).
None of the text below substitutes financial or legal advice. The aim is to inform about their pros and cons and tips on how each strategy works.
So let’s dive in and explore both Flipping and BRRRR together!
By George Nicola (Expert Stager)
Definition Of The Two Real Estate Investment Strategies: Flipping And Brrrr
Table of Contents
Real estate investment can be a great way to build wealth and achieve financial independence. But with so many different strategies available, it’s essential to understand the advantages of each before deciding which one is right for you.
Flipping houses involves buying property quickly, renovating or repairing it, and then reselling it at a higher price to generate profits.
On the other hand, Brrrr stands for ‘Buy, Rehab, Rent, Refinance, Repeat’. This strategy involves buying an income-generating property that can provide cash flow while building equity over time through refinancing.
Both approaches offer unique advantages when it comes to investing in real estate. But which one will best suit your needs?
Let’s take a closer look.
What is Fix and Flip Method As A Real Estate Investment Strategy
House Flipping (Fix and Flip method) is one of the most popular and profitable real estate investment strategies.
It’s a great option for those looking to make their first real estate investment, as it requires relatively little capital upfront.
This approach involves buying residential property quickly, renovating or repairing it, and then reselling it at a higher price to generate profits.
Home hacking can also be used for flipping houses. This is also an attractive strategy that allows you to live in a part of your flipped property while collecting rent from tenants in other parts of the property.
- Not only does this help you lower housing costs, but it also helps you build equity faster by leveraging rental income against your mortgage payments.
- Plus, you don’t need to be an experienced investor – anyone who knows how to start flipping houses can become a home-hacker to maximize their returns on investment.
However, house flipping while house hacking can be risky and demanding.
Overall it’s not easy to live on a construction site, especially if it’s a run-down house that requires more than 80% of repairs.
If this is your strategy, make sure you’re taking a calculated risk before diving full-on.
TIP: Always make sure to follow the 30% to 70% rule!
In real estate 30% to 70% rule is a guideline that suggests that 30% of a property’s value should be attributed to the land, while the other 70% should be attributed to the building or structures on the land. This rule is used to help real estate professionals and investors determine the fair market value of a property.
Advantages And Disadvantages Of Flipping Houses
Flipping houses can be an excellent way to get into real estate investing and make a profit.
But, as always, there are pros and cons to consider before jumping.
Understanding why you should invest in real estate, what types of investors exist in the market, and the advantages and disadvantages of flipping homes will help you decide if this strategy is right for you.
The pros of investing in real estate include generating cash flow from rental income or capital appreciation when it comes time to sell.
House flipping also offers the potential for higher returns on investment than other forms of real estate investments like buy-and-hold strategies.
There’s no shortage of different types of investors who pursue house flips; some have decades of experience, while others may just be getting their feet wet.
Of course, nothing comes without risk – which means those considering flipping houses must also weigh the cons.
These include high operating costs associated with repairs, renovations, taxes, and insurance.
- the inability to predict outcomes due to numerous variables
- finding quality contractors at reasonable rates
- unpredictable housing markets
- financing challenges, such as secured loans that require large down payments
- legal issues related to contracts, zoning regulations, title searches, etc.
additional renovation costs
Ultimately, understanding all aspects of house flips — including benefits and drawbacks — will help ensure your decision is based on sound judgment rather than emotion alone.
Case Study/Example Of A Successful House Flip
With a clear understanding of the pros and cons of flipping houses, let’s take a closer look at what it looks like in action.
A great example is from one investor who started with a real estate investment opportunity that required only minor repairs before being able to be sold for more than twice its purchase price.
This was achieved by ensuring the home was up-to-date on all necessary inspections and permits while also focusing on cosmetic improvements such as re-plastering, painting, and flooring upgrades.
In his case, the closing and repair costs did not exceed expectations; hence, it was a successful project. With careful budgeting and strategic planning, this project turned out to be an incredibly profitable flip.
These types of success stories are inspiring; however, they’re not always guaranteed when investing in real estate – or any other type of asset, for that matter.
Even a seasoned real estate professional can get in trouble if they don’t plan.
To improve your odds of achieving good results, consider these factors:
- condition of property
- total cost/investment needed
- financing options available
- market demand
- the potential return on investment (ROI).
Taking the time to assess each component properly can mean the difference between flipping success – or failure.
What Are The Most Important Factors To Consider When Choosing A Property To Flip?
Now that you have a better understanding of the potential involved with house flipping, it’s time to consider what factors should be taken into account when choosing a property.
- First and foremost, location is key – ideally, you’re looking for an area where demand is high, but supply remains limited. Ideally, the worst house on the best street!
- You’ll also want to take into consideration the condition of the house itself and rehab costs; if it requires extensive renovations or repairs, then factor in those costs before deciding whether or not this investment opportunity makes sense financially.
- Make sure to look at possible business partners or financing options available, as this can help reduce your overall risk while allowing you to maximize returns on any profits made.
Considering these elements carefully allows investors to determine whether flipping a home is right for them. With all this information in hand, let’s discuss how best to prioritize renovations when considering such an investment opportunity.
What Kind Of Renovations Should I Prioritize When Flipping A House?
It depends on how distressed the property is. It’s understandable that many people may feel uneasy when considering the cost of renovations involved with flipping a home.
However, rest assured that it doesn’t have to be expensive – in fact, there are several ways to prioritize which repairs should come first without breaking the bank.
Start by tackling any necessary structural issues, such as plumbing or electrical problems; these types of repairs can quickly become costly if not addressed.
Then move on to cosmetic fixes like painting, replacing fixtures and flooring, and updating cabinetry – where you’ll see the most return on your investment once the property hits the market.
When done right, renovating an existing structure can add tremendous value while minimizing expenses.
With careful attention paid upfront to the location and condition of the home, plus intelligent choices regarding what kind of updates are made, flipping houses can be an excellent alternative for savvy investors looking to maximize their ROI.
Now let’s focus on understanding BRRRR (Buy, Rehab, Rent, Refinance, Repeat) as another viable real estate investing strategy.
What is BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) As A Property Investment Strategy
Let’s take a closer look at BRRRR (Buy, Rehab, Rent, Refinance, Repeat) as an investment strategy.
This method allows investors to purchase property, renovate it and increase its value before refinancing and repeating the process. It can be attractive for those looking to build wealth through long-term cash flow.
The key components of this strategy are buying undervalued properties with cash.
Rehabbing them by making necessary repairs or adding additional features that could increase their market value; renting out these properties to tenants.
Then refinancing the homes at current market prices so you can pull out your initial capital plus any profits from rental income.
By doing this over and over again on multiple properties, investors can potentially see significant returns while minimizing risk along the way.
Advantages And Disadvantages Of Brrrr
The BRRRR strategy has several advantages, making it an attractive option for real estate investors.
- Firstly, it allows you to purchase properties with cash, which helps minimize risk as there is no need to rely on mortgages or other forms of financing.
- Secondly, the renovations can increase the value of your property and help create a steady stream of rental income.
- Finally, by refinancing at current market prices, you can access your original capital plus a consistent cash flow from rental income.
However, this strategy does come with certain disadvantages as well.
For instance, it requires upfront cash investments to buy and rehab properties; additionally, depending on the location and condition of the property being purchased and renovated.
There could be extensive time commitments in finding tenants, maintenance costs, property manager for to manage each property correctly.
On top if market conditions change suddenly or unexpectedly during the refinance process, expected returns may not materialize.
Case Study/Example Of A Successful Brrrr Investment
Now that we’ve gone over the advantages and disadvantages of investing in BRRRR let’s look at an example to illustrate how it can play out.
John Doe is a real estate investor looking for his next opportunity. After careful consideration, he decides to pursue the BRRRR strategy by purchasing an older three-bedroom house in need of renovation.
He puts down 20% cash up front and takes out a loan from the bank for the remaining 80%, which covers both purchase price and renovations.
Once the property has been renovated and rented out, John refinances his loan at current market value so that he can access his initial capital plus any profits from rental income.
In this way, John could turn a sizeable profit on his investment with minimal risk.
This case study demonstrates just one way that investors can use the BRRRR strategy to their advantage when pursuing real estate investments.
With proper planning and research, investors may be able to enjoy similar returns on their own projects as well.
It’s now time to consider financing options for those interested in taking this route – but how do you make sure your first BRRRR property is successful?
How Do I Finance My First Brrrr Property?
Financing a BRRRR property is not as difficult as it may seem. There are several options available, each with its pros and cons.
For example, from our case study, John Doe used a conventional mortgage with a traditional bank to finance his project – but this isn’t the only option.
In addition to banks, other lenders, such as hard money lenders or private investors, can provide short-term loans with higher interest rates that make the initial capital more accessible.
These options can be especially attractive for those without enough cash to cover both purchase price and renovations upfront.
No matter which route you decide to take when financing your first BRRRR property, it’s essential to understand your options before making any decisions.
Do plenty of research and calculate estimated costs in order to ensure that you will still make a profit once you refinance at the current market value.
Don’t fall for the “perfect property” that your neighbour or friend knows, always double check and verify.
With careful consideration and planning, investing in real estate using the BRRRR strategy could be successful for novice and experienced investors.
There are some books that I think are worth the time reading:
- Best 10+ books on House flipping
- Best 5 BRRRR books
What Kind Of Renovations Should I Prioritize When Rehabbing A Rental Property?
When it comes to rehabbing a rental property, there are several important renovations that should be prioritized.
These include necessary safety precautions such as smoke detectors and fire alarms and any structural repairs or updates needed for the building.
Additionally, it’s wise to focus on cosmetic changes like fresh paint and new flooring in order to make the space more attractive to potential tenants.
Don’t forget about energy-efficient upgrades like LED lighting or better insulation – these can save you money long-term while also making your rental unit stand out amongst competitors.
Investing time and money into renovating a BRRRR property correctly is essential if you want to maximize its value when refinancing at market rate later down the line.
So what are the risks associated with real estate investing?
What Are The Risks Associated With Real Estate Investing?
The idea of striking it rich in real estate can sound appealing, but some risks come with investing.
From unexpected repairs and hidden costs to the possibility of market downturns or tenant turnover, there’s no guarantee of success when it comes to real estate investments – even if you do your research beforehand.
It’s important to be aware that flipping a property requires quick decisions and action, while BRRRR investing is more time-consuming due to its longer timeline.
Both strategies involve financing options such as hard money loans and HELOCs, which carry rules and regulations. It’s important to understand how each loan works so you’re prepared for any potential issues down the line.
So before jumping into either strategy headfirst, take some time to consider all the pros and cons from both sides. That way you can decide which investment route will best suit your goals and needs going forward.
What Should I Consider Before Choosing A Real Estate Investment Strategy?
There are a few important things you should take into account before deciding which strategy is right for you.
It’s important to look at your financial situation and consider what type of returns on investment (ROI) you expect from either Flipping or the BRRRR method.
- Do you have the capital available up front for flipping?
- Does the slower timeline of BRRRR fit better with your budget and lifestyle?
- Don’t forget about the importance of networking when it comes to finding deals in any kind of real estate market. If you are the shy person, this might be a problem.
You also need to think about how much time and effort you’re willing to put into this venture.
Flipping requires more hands-on work with quicker cash returns, while BRRRR takes longer but offers long-term returns. You’ll want to make sure that whichever path you choose aligns with both your short-term goals as well as your long-term plans.
Finally, remember that no matter which way you go, having an experienced mentor or partner can be invaluable in helping guide decisions along the way – so don’t underestimate the power of knowledge sharing!
So what should you chose – BRRRR or Flip?
Real estate investing is a great way to build wealth, but it’s important to pick the right strategy for you.
Fixer-uppers or Brrrr both have their advantages and disadvantages, so consider your goals, budget, cash reserves in case things go south, market conditions, resources and risk tolerance before making a decision.
When flipping homes, pay close attention to factors like location, correct property condition and purchasing price in order to maximize profits from your investments.
With Brrrr investing, understanding how much money you need upfront as well as what kind of renovations are needed should be top priorities when picking rental properties.
No matter which real estate investment route you go down – whether it’s flipping or Brrrr – there will always be risks associated with such an endeavor.
It’s my advice that no matter which option you choose, take time to plan out each step of the process carefully so that I can make informed decisions that give me the best chance at success.