What is the BRRRR Method in Real Estate? Does It Work?

The BRRRR method is one of the most popular strategies among real estate investors looking to build a profitable rental property portfolio. It provides a structured way for investors to acquire properties, increase their value through renovations, and then use the income from tenants to refinance the property, all while repeating the process to build a sustainable stream of passive income. But is it a good fit for your portfolio? We discuss the process in this blog post.

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What is the BRRRR Method?

The BRRRR method stands for Buy, Rehab, Rent, Refinance, Repeat. It begins with finding the right property to buy. Investors typically look for distressed properties or homes that are priced below market value, which creates the opportunity to add value through renovations. After purchasing the property, the next step is the rehabilitation phase, which involves fixing up the house to make it livable and attractive for tenants. This might include cosmetic improvements, structural repairs, or upgrades to essential systems like plumbing and electrical.

Once the property is rehabilitated, it’s time to rent it out. The rental income becomes the cash flow that will support the investment, while also establishing the property’s value for the refinancing step. Once there is a reliable stream of rental income, investors can approach a lender to refinance the property. This refinance allows investors to pull equity out of the home, repaying the initial financing used to purchase and rehabilitate the property. With the cash from refinancing, investors are now ready to repeat the process—identifying and purchasing another property to begin the BRRRR method again.

The key advantage of the BRRRR method is that it creates a cycle where investors can use their existing properties’ equity to fund new investments, continuously growing their portfolio without requiring large amounts of new capital. It’s a strategy designed for long-term growth in the rental property business.

Does the BRRRR Method Work? What Data Indicates Success?

Many real estate investors have successfully used the BRRRR method to build wealth through rental properties. One of the clearest indicators of success is the ability to increase a property’s value significantly through strategic renovations. When investors improve a distressed property, they raise its market value, allowing them to refinance at a higher valuation and unlock equity to fuel future investments.

For example, let’s say you buy a property for $150,000, spend $50,000 on renovations, and raise its market value to $250,000. After renting the property to tenants and generating steady income, you can refinance the property based on its new value. This could allow you to take out up to 80% of the property’s value (known as the loan-to-value ratio), which in this case would be $200,000. You could then use that $200,000 to pay off the original loan and reinvest in your next property.

Data shows that markets with steady rental demand, such as large cities or growing suburbs, tend to be the most successful for BRRRR investors. Real estate investors often look for areas where rental properties are in high demand but where home prices have room for appreciation. For example, investing in properties in growing cities like Stamford, CT, or Hartford, where rental demand is solid and property values continue to rise, can set up a successful BRRRR cycle.

Another success factor involves the rental income generated from the property. The income should comfortably cover the mortgage payments after refinancing while also generating positive cash flow. Successful investors closely monitor local rental rates and ensure that their rehabbed property can be rented out at competitive prices, which helps secure the success of the BRRRR strategy.

What is the 70% Rule for BRRRR?

The 70% rule is a guideline used by real estate investors to determine the maximum price they should pay for a property during the “buy” phase of the BRRRR method. The rule suggests that investors should pay no more than 70% of a property’s After Repair Value (ARV), minus the cost of necessary repairs.

For example, if a property’s ARV is estimated to be $300,000 after renovations, and the rehab costs are $50,000, the maximum purchase price you should aim for would be $160,000. This is calculated as 70% of $300,000 ($210,000), minus the $50,000 in repair costs, which leaves $160,000 as the maximum price.

The purpose of the 70% rule is to create a margin of safety for investors, allowing them to recoup their investment costs and earn a profit. By keeping the purchase price below 70% of the ARV, investors can protect themselves from potential market fluctuations or unforeseen expenses that may arise during the rehab or rent phases. The rule helps investors stay disciplined and avoid overpaying for properties that won’t deliver strong returns.

While the 70% rule is a helpful guideline, it’s important to note that it’s not a hard-and-fast rule for all markets. In highly competitive real estate markets where property prices are high, investors may have to adjust the rule to account for market conditions. However, sticking close to this rule helps ensure that you’re making a sound investment with room for profit.

What are the Disadvantages of BRRRR?

While the BRRRR method has proven successful for many real estate investors, it’s not without its challenges.

Significant Up-Front Capital

One of the primary disadvantages of the BRRRR strategy is that it requires significant upfront capital. Buying a property, financing renovations, and covering holding costs all demand liquidity. Investors need to be prepared to handle these costs without relying on rental income in the short term, especially during the rehab phase when the property isn’t generating any income.

Rehab Costs are Unpredictable

Another challenge is the unpredictability of rehab costs. Renovation projects often uncover hidden issues like plumbing problems, foundation damage, or outdated electrical systems that weren’t apparent during the initial property inspection. These unexpected costs can quickly eat into your budget and reduce the profitability of the investment. This is why experienced investors emphasize the importance of budgeting for contingencies and working with trusted contractors who can provide accurate estimates.

Refinancing Isn’t Always Guaranteed

Additionally, the refinancing step in the BRRRR method isn’t always guaranteed. Lenders base refinancing decisions on several factors, including the property’s new value, the investor’s creditworthiness, and the stability of the rental income. If the property doesn’t appraise for as much as expected, or if rental income is lower than anticipated, securing a favorable refinancing deal can be difficult. In some cases, investors may not be able to pull out enough equity to cover their initial investment, which can slow down or even halt the process of repeating the BRRRR cycle.

You Have to Manage Tenants

Finally, the BRRRR method requires careful tenant management. Since rental income is essential for refinancing and generating cash flow, having reliable tenants is crucial. If the property remains vacant for extended periods or tenants fail to pay rent, the BRRRR process can become financially unsustainable. Investors must have a solid tenant screening process in place to avoid costly vacancies or tenant turnover.

Ready To Explore the BRRRR Method?

The BRRRR method is a powerful real estate investment strategy that has helped countless investors build wealth through rental properties. By buying distressed properties, rehabbing them, and refinancing based on increased value, investors can create a self-sustaining cycle of growth. While the strategy has its challenges, such as upfront capital requirements and the potential for unexpected rehab costs, the rewards can be substantial if done correctly. If you’re interested in selling a house fast for cash in Philadelphia or elsewhere, please get in touch. We’d be happy to help. We also help in these areas, among others:

• We buy houses in the Bronx
• We buy houses in Pittsburg
• We buy houses in Maine
• We buy houses in Toledo