What better topic for a chilly winter than the BRRRR method? It’s the brisk way to build a portfolio of rentals with little or no money down!
The cool name is credited to Brandon Turner about ten years ago. However, the method has existed for at least twenty years.
After Sam Primm iced it by upgrading the final R to an S for Scale, it’s often called the BRRRS method. More on that S later!
Let’s unpack the BRRRR steps:
B = Buy
R = Rehab
R = Rent
R = Refi
R = Repeat
Step 1: Buy a house at a discount.
Key word, “discount”! If you want a no-money-down deal, you’ll need to know your numbers to calculate your maximum offer on the property you’re considering.
Know your ARV. Adjust your comps for the current market. Add up your repair costs.
Banks will lend you up to 75-80% of the after repair value (ARV). Use the formula ARV x 75% – repair costs to be sure you’ll come out ahead.
Some people are willing to pay more for a property, realizing they won’t profit as much right away. They will go up to 80% or bring some of their own money to the table.
Will it cash-flow? Be sure of your exit strategy. Make sure the property will generate the cash flow you’re looking for.
Use the cash flow analyzer on our website or any other calculator you like.
Step 2: Rehab the property.
Make it as bulletproof as you can. Think, how can I get as few maintenance calls as possible? Make sure all of the systems are in good working order. Better to do updates now rather than when a tenant is in the property.
Most investors don’t like to put carpet or tile in their rentals because they are harder for tenants to keep clean. Choose more practical options.
Make sure your rental fits in with similar properties in the area but stands out a little to be a tenant’s first choice.
Step 3: Rent the property out to an awesome tenant.
Finding an excellent tenant is critical in the long term. If you’re working with a property management company, make sure they will find you the very best tenants.
If you want to find a great tenant yourself, look at their net income, not their gross. If they do side jobs, that may not be steady. You’ll need to ask for a higher deposit. Don’t skimp on background and reference checks.
Let them know up front your expectations of them in terms of taking care of the property. Look at it as a coaching opportunity to get them to do the cleaning and upkeep properly.
Step 4: Refi the house.
After you rent it, refinancing gets you out of your temporary, more expensive loan.
Build a relationship with both your front-end and long-term lenders to ensure a smooth process from start to finish.
Let your long term lender know you’re going to BRRRR multiple properties, and ask what their standards are for the properties they like to lend on.
Ask the bank how long they want a tenant in place before they will let you refi.
The BRRRR process is how you build a portfolio with no money out of pocket. If you look for good enough deals you’ll be borrowing 100% of what you need.
Here’s the key: make sure what you put into the property, purchase and rehab altogether is 75% or less of what it will appraise for.
The bank will lend you around 75-80% of value. So when you refi, you get all your money back, and you’re ready to find another deal.
Step 5: Repeat!
Find your trusted lenders and repeat the process again and again until you hit your financial freedom number.
The greater your cash flow for each property, the sooner you’ll get there.
Or… Step 5, Next Level: Scale!
That S is what builds real wealth!
Once you have some experience, begin to scale by doing multiple projects at a time, using no money down.
Some people BRRRS properties in batches of three or more at a time.
The foundation for making this work is the trust and solid relationships you’ve built over time. Start now if you haven’t already, and be intentional about it!
If you want to find out more about scaling, go to fasterfreedom.com to learn from Sam Primm himself.
No need to chill until after the holidays! December is a fine month to skate out on the ice and start a new BRRRR project.
Winter has the reputation of a slow real estate period, but it’s also a cool time to find motivated sellers ready to make that great deal you’re looking for, without as much competition.
By the time early spring comes, you’ll be ready to hit the market, find awesome tenants, and watch that cash flow like melting snow to a rushing creek.