BRRRR Strategy
The BRRRR Strategy, I know you are thinking what is the BRRRR strategy. I know I was when I first heard of it. Well let me help explain what it means.
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B- Buy
Get a good property that is under value or you can add value by rehabbing, making repairs, increase rents.
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R- Rehab
Repair or Rehab your newly acquired property
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R-Rent
Once the property rehab, find a good quality tenant and get it rented. Start cash flowing.
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R- Refinance
Once you have it rented and add the value to the property now is the time to refinance. By refinancing it you can take most or all of your money back out to invest in more properties.
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R- Repeat
Do it all over again
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When it comes to BRRRR's I look at it as flipping a house to myself. I get my initial investment back of my 20-25% down and the repair costs back. As well as a renovated long term buy and hold.
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Example of a property/ BRRRR that I did:
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Purchase Price: $57,000
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Down payment 20% down- $11,400 (note there are some other costs closing, appraisal, inspection, etc.)
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Loan Amount- $45,600
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Repair costs - $16,000
Rough total out of pocket cost - $27,400 (note this doesn't include closing cost/other costs)
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Rents - $950 a month
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After Repair Value (ARV) - $100,000
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Money back from refinancing (75% of $100,000= $75,000) (New Loan $75,000- Old Loan $45,600 = $29,400)
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As you can see we roughly put $27,000-30,000 into this rental and got $29,400 back on the refinance. Now you can use that $29,400 to go do another BRRRR and build that portfolio.
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PROS and CONS of the BRRRR
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PROS:
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You have less money invested in your rental properties
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You can buy more rental properties (by recycling the same initial cash)
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By having more properties you will have more tax benefits, more equity, and more appreciation.
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CONS:
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You loans might be higher so your cash flow my be less
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Chance the appraisal might come in lower then expected. Which means you might not be able to find a lender to do the refinance.
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There are always surprises when rehabbing a property.
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