BRRRR (pronounced “burr”) is a strategy coined by Brandon Turner at BiggerPockets and it is one of the most popular real estate investment strategies due to its popularity and ease of deployment. The benefit of doing BRRRR is that you will not need to have a lot of initial capital to get started. To make your life easier though, we at DoorInvestor suggests that you should have enough initial capital for the cash purchase of the property, plus the additional funds for complete a rehab. You obviously can try to come up with all the capital via creative ways, but it may add to your stress level so there are pros and cons. For the purpose of this blog post, we will focus on discussing the fundamentals of BRRRR:

B – Buy

The “B” in BRRRR represents buy. This is the very beginning of this process and you start with buying a property. It can be something as simple as a single family, or if you are experienced or adventurous enough you can certainly buy a multifamily. Traditionally, what you do here is you find a property that is undervalued and has a lot of potential – seeing the potential of a beat-up property is where experience comes in. All other things you may be able to wrap a system or decide by running the math, but seeing beyond the current condition of the property and visualize how it can become beautiful again, requires the artistic skill set, trusting your gut feelings, and leveraging your previous experience.

At this stage, it is best to locate a property in distress, and the seller is motivated and can sell for below market value. This will increase your chances of maximizing the profit potential, though as long as you are paying market value, you are well on your way to make some bucks here!

R – Rehab

Once you close on the transaction, it is time to get to work! You need to consider all the possible options. One thing to remember is you are not rehabbing the property for yourself to live in, you are doing this to rent it out at the end to make a profit. Therefore, you need to put your personal taste (painting the walls light purple) and personal preference (no dishwasher installation) aside, and go with what the general public usually accepts. This will allow you to cover the widest audience and sell quickly.

Some of the possible rehab works include:

• New granite countertop
• Replace with new toilets
• Re-surface or replace the kitchen cabinets
• New light fixtures
• New floors
• New paints

These rehab tasks may provide you the “best bang for the buck.” The important thing to remember here is: Stay on time and stay on budget!

R – Rent

Once you are done rehabbing the property, it is time to rent it out. Having a good tenant in place is crucial for the success of this strategy. At the end, you are relying on the passive income to come in month after month. In the event of a single family, there is no force appreciation so how much you rent it for may not be so relevant. But to save yourself some headache down the road, you still will need to be diligent during the tenant application and screening process, because that is someone who you will be dealing with going forward, and help fund your strategy.

As an investment property, it is also important to know that, banks usually do not like to lend against a property that is vacant and non-performing. Therefore, it is our best interest to place a tenant in at this stage before we move on to the next.

R – Refinance

Once the rehab is done and the tenant is in, it is about time to cash out and move on. Refinance is tricky because you will need to start off by building a relationship with a banker. You need to the loan underwriting guidelines, including things like:

• How long do I need to hold the property before it will use my ARV instead of my initial purchase price as the property value? (This is sometimes being referred as “seasoning.”)
• How many properties can I refinance under my personal name?
• Can I do cash-out refi and what are the terms?

Once you figure out a good banker to work with, this process will become much easier because you will know exactly the underwriting criteria, and exactly what documents you will need to provide.

R – Repeat

Finally, it comes to full circle. You got your cash-out refi and it is time to take the cash and invest in the next deal, hence the term “repeat.” In the ideal situation, there should be a positive difference between your initial purchase price and your refi appraisal value, so you can make some money off it. The important take-away here is at the time of your repeat phase, you need to have enough capital back to your pocket so that you can truly keep repeating this process. If you are holding up more and more capital for each transaction, something is not right and can lead to the strategy exhausting due to the lack of funds.

If you would like some help from BiggerPockets to evaluate your BRRRR strategy, there is a BRRRR Calculator that you can use at BiggerPockets: https://www.biggerpockets.com/brrrr-calculator