BRRRR Method with No Money Down

Nikka Sulton

BRRRR Method with No Money Down

Apart from sounding chilly, the BRRRR method in real estate investment stands for buy, renovate, rent, refinance, and repeat. Some investors simply call it the BRRR method, omitting “rent” as it’s self-explanatory. But let’s not get caught up in semantics.

The significant advantage of the BRRRR strategy is that it allows you to recover your initial investment within a few months. This means you can use that money to invest in another property, rapidly growing your rental portfolio and passive income with minimal cash outlay.

Now, let’s dive into all the essential details about the BRRRR real estate investment strategy to get you started on building your portfolio.

What Is the BRRRR Method?

Here’s a simplified guide to using the BRRRR method for real estate investment without tying up your own money in the property after refinancing.

Step 1: Buy

Start by acquiring a property that requires substantial improvements to increase its value significantly, often referred to as “forcing equity.” Many BRRRR investors opt for purchase-renovation loans, which allow them to borrow 100% of the renovation costs. Alternatively, you can explore financing options like a revolving line of credit, such as a HELOC against a rental property or your home. Another option is to consider unsecured business lines of credit or business credit cards, available to real estate investors. If you’re new to this concept, you can look into services like Fund & Grow, which help real estate investors access substantial credit lines, typically ranging from $150,000 to $250,000, to use the BRRRR method without investing your own money upfront.

Step 2: Renovate

The renovation can range from simple cosmetic changes to a full-scale gut and rehab. It’s essential to avoid taking on projects that exceed your capabilities, as I learned from my initial property purchases.

However, the renovations must significantly increase the property’s value. Your goal is to build enough equity to enable you to borrow the entire amount you invested in the property. But let’s not jump ahead of ourselves.

Step 3: Rent

Once the renovation is complete, move on to Step 3, which involves tenant screening and promptly leasing the property. Remember, a vacant property translates to lost income every month.

Begin advertising the unit for rent even before every detail of the renovation is finalized. Your goal is to have a tenant sign a lease agreement and move in as soon as the work is finished.

Step 4: Refinance

Now it’s time for Step 4 – refinancing to replace your purchase-rehab loan with a long-term mortgage. The goal is to recover your initial investment and renovation costs, provided you’ve built up enough equity in the property. Typically, the more extensive the renovations, the greater the potential for increased equity.

Remember, lenders determine the cash-out refinance loan based on the property’s after-repair value (ARV), not the initial purchase price. However, exercise caution not to over-borrow and become over-leveraged, which could lead to negative cash flow due to high mortgage payments.

Step 5: Rinse & Repeat

With the cash-out refinance complete, your initial funds are now available for the final step: rinsing and repeating the process to acquire more rental properties.

By recycling the same down payment, you can gradually build a portfolio of income-generating rental properties. If done consistently, this strategy could lead to achieving financial independence and early retirement with as little as $50,000 in your pocket.

How does Buy Refurbish Refinance work?

I’ve simplified the BRR strategy into clear steps:

1. Find a property needing updates:

Locate a habitable but outdated property that requires modernization.

2. Crunch the numbers:

Research property returns, including estimating refurbishment costs. Typically, a 3-bedroom property in the north may need £15,000 to £20,000 for refurbishment. If you have time and skills, you could reduce costs to around £6,000 to £8,000 by doing some work yourself.

3. Purchase the property:

Acquiring the property involves a detailed process, which I recommend exploring in our guide. Buying with a mortgage may take longer than with cash.

4. Refurbish the property:

This phase is crucial for a good return. Focus on interior updates, like kitchen and bathroom replacements, new flooring, and fresh paint. Balance improvements with cost-effective choices, avoiding excessive luxuries.

BRRRR Method: Pros and Cons

As with any investment strategy, the BRRRR method comes with its set of advantages and disadvantages. Let’s explore them:

Pros:

Passive Income: BRRRR allows you to generate a steady stream of passive income from your properties.
Equity Growth and Portfolio Expansion: By purchasing and renovating properties, you not only increase your equity but also grow your rental portfolio, building long-term wealth.
Scalability: This method can be repeated indefinitely, resulting in the acquisition of additional properties. With each new property, you can employ the same approach to pay off financing, accelerating your portfolio growth.

Cons:

Significant Risk: The method relies on calculated estimations. Extensive and costly renovations can lead to additional expenses, and a lower After-Repair Value (ARV) may limit the equity you can access during refinancing.
Time-Consuming: Acquiring, renovating, managing, and maintaining properties is a time-intensive endeavor. It involves substantial effort and commitment.