The BRRRR method is an awesome real estate investing strategy that’s rising in popularity.
It allows you to recycle your initial investment into new properties, leverage hard money lenders, and grow your business beyond your financial capabilities.
This is the primary strategy that Ryan Dossey — the founder of Call Porter — uses to find and manage deals for his business.
But how does it work?
Here’s an explanation for beginners — check out the video below or read through the steps!
It all starts with finding a good deal.
As the old real estate saying goes, “You make your money when you buy.”
That’s because you only make money if you find a great deal.
But how do you know if you’ve found a great deal?
You’ve probably heard of the 70% rule — it states that an investor should pay no more than 70% of the ARV (After Repair Value).
And while that rule works well for wholesalers, it’s not ideal for investors using the BRRRR method, because it doesn’t factor in holding costs (taxes, insurance, and marketing). Ryan recommends anticipating an additional $5k for holding costs on properties.
This means you won’t be able to purchase properties for as much as some wholesalers, so it’s probably a good idea to find your own deals.
After you buy a property, you rehab it to increase its value.
But before you buy, it’s important to have a clear idea of how much money you’ll need to put into rehabbing the home.
As Ryan mentions, this is one of the most common places for deals to go sideways — because an optimistic investor underestimates rehab costs.
Get a full-blown inspection on the home, ask for multiple bids, and don’t take the cheapest one. You’ll need to hire a good contractor you can trust. And most importantly, you’ll need to consider these repair costs before you buy.
The reason for the rebab is so that you can rent out the property.
The only way that the BRRRR method works is if your properties keep cash flowing.
That requires tenants… good tenants.
The goal, then, is to purchase properties that can pay for themselves and (ideally) create some positive cashflow.
(It’s also a good idea to buy in areas where homes are appreciating in value)
But of course, not all properties or tenants will be as easy or affordable to manage. Here are some criteria to consider…
- Purchase homes that are likely to appreciate over time.
- Only purchase homes that are A-C class assets.
- Don’t consider tenants who’ve been evicted before.
- Tenants should make 2.5 to 3 times the cost of their rent.
- Verify the tenant’s income and rental history.
- If there’s no rental history, require someone to cosign.
This is where the rubber meets the road and you find out if you got yourself a good deal.
You’ll want to do a cash-out refinance. This type of refinancing allows you to recoup and reinvest your own money or pay back your hard money lender so that you can find a new hard money lender.
So long as the property is cash flowing, it should pay for itself on the new mortgage.
But finding a bank that will do a cash-out refinance can take some time. Seek out local regional community banks and ask them…
- Do they do cash-out refinancing on residential properties?
- What is the interest rate?
- How long is their seasoning period?
Try and stay away from institutional lenders, which typically have a much higher interest rate.
Now you repeat the process!
If your first deal went well, you can either find a new hard money lender or reinvest your own initial investment.
Keep going and you can purchase millions of dollars of real estate using this method — Ryan Dossey has purchased more than $8 million worth of assets in just a couple of years!
Now it’s your turn! 🙂