BRRRR Method
What is the BRRRR Method?
BRRRR stands for buy, rehab, rent, refinance, repeat. The BRRRR method is a common strategy for investors looking to diversify into real estate investing. Investors who utilize this method first identify a distressed property. Their goal is to then improve the asset, rent it out, and ultimately, replicate their success across other properties.
See below for more information on each step of the process:
- Buy: Investors purchase a distressed asset, often at a discount due to difficult market conditions or other business challenges the previous owner faced.
- Rehab: Investors fix up the property. Depending on the asset’s current condition, this may involve a significant amount of work, including interior and exterior upgrades.
- Rent: Investors find tenants willing to sign a lease to occupy the property. Note that post-rehab, the property owners may be able to market their asset more successfully and charge rent at or even above market comps.
- Refinance: Investors use a cash-out refinance to free up money to invest in other rental properties.
- Repeat: Investors look to scale their portfolio by purchasing additional properties.
Pros and Cons of the BRRRR Method
One of the main benefits of the BRRRR method is that it enables investors to diversify at scale. Since BRRRR investors utilize a cash-out refinance, they do not need to worry about securing large down payments on multiple properties.
That said, BRRRR investing involves some risk. If, for instance, lenders value the property for less than expected, investors may not be able to purchase additional assets upon refinancing. BRRRR investors may also be surprised how long it can take to complete renovations (and how expensive the process can be).
Note this strategy is also not as hands-off as other forms of passive real estate investing. Property owners need to take active ownership of daily operations. Particularly during the rehab phase, this can be frustrating and time-consuming.
The Bottom Line
Investors with little prior real estate experience may want to consider other investment opportunities, as success depends largely on execution. In order to generate high returns, it is crucial to understand how to select the right assets and manage them effectively.
Alternatively, platforms like EquityMultiple provide access to passive real estate investments–without the headaches of active ownership. Investors can create an account, browse live opportunities, and start building their real estate portfolios for as little as $5,000.
Each investment has been pre-vetted, and is managed by an experienced developer or sponsor, in partnership with EquityMultiple’s Asset Management Team. Contact us to learn more, or create your account today.
*Past performance does not guarantee future results