Real estate investing can be a one-and-done deal or a strategy with more work but potentially higher profits. If you’re an investor looking for ongoing passive income, the BRRRR method may be a good option.
The BRRRR method means you buy, rehab, rent, refinance, and repeat. It’s a cycle to build a robust real estate portfolio by purchasing undervalued properties using the equity of an existing investment property, renovating the new property, renting it out, and repeating the process.
But does the BRRRR method work? It does, and here are five reasons why.
1. Leverages Your Real Estate Investments
If you own a property with equity, you can leverage that equity to grow your real estate portfolio. Refinancing an existing property to use the equity provides the capital needed to purchase and renovate another property.
This means you leverage your initial investment, putting the money to good use with the hope of high returns from the newly invested property from both capital appreciation and rental income.
Each time you use a property’s equity and reinvest the funds in another property, you amplify your earnings on the existing property while creating a potential for future passive income by renting the new property after rehabbing it.
2. Rehab Increases a Property’s Value
A big part of the BRRRR process is rehabbing a property. You purchase an undervalued property and rehabilitate it, potentially increasing its value. This could provide immediate increased asset value and allow potentially higher rental rates.
A higher property increases your net worth and potential future profits when you sell the property. It also opens more opportunities to continue the BRRRR method by leveraging the equity in the recently renovated property to purchase another property and further grow your real estate portfolio.
3. Creates Passive Income
A big reason the BRRRR method works is the passive income it creates. Initially, you must put in the hard work. Refinancing an existing property, finding an undervalued property, and rehabbing it requires extensive labor. Once you complete the process, you rent the property to tenants, and your workload decreases.
If you manage the property yourself, there’s still work involved, but it creates an ongoing income stream that can be somewhat passive and creates an opportunity to further expand your real estate portfolio by tapping into that’ property’s equity and repeating the process.
4. The BRRRR Method is Repeatable
Some real estate investment strategies, like fix-and-flips, are a one-and-done strategy: You buy the house, rehab it, and sell it. You earn profits once, and there’s no ongoing or passive income.
Real estate investors can repeat the BRRRR method as many times as they want. This enables investors to grow their real estate portfolio as large as they want without generating a lot of capital.
5. Low Barrier to Entry
All it takes to start the BRRRR method is owning a single property. Once you earn equity in that property, you can use it to purchase another property, but this time it’s an undervalued property you can renovate.
The BRRRR method makes it easier for beginning investors to start investing, and experienced investors can grow their portfolios even further without waiting to have enough cash in hand.
Final Thoughts
If you’re wondering if the BRRRR method works, know that it does. But like any real estate investment strategy, it requires careful planning and consideration. It’s a great option for beginning and experienced investors looking to grow their portfolios.
The key is finding the best financing, undervalued properties, and having a team of reliable contractors to handle the rehab.
Purchasing a property in a hot rental market can help you earn passive income while growing your overall real estate portfolio without the need for excessive capital.
Five Steps to Financial Freedom
How do you BRRRR? Buy a property under market value, add value with renovations, rent it out to tenants, complete a cash-out refinance, then use that money to do it all over again. In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
