The B.R.R.R.R. Method and Why We Use It
We’re sharing some pros and cons to using the B.R.R.R.R. method to buy property.
A lot of people ask us how we do property acquisition for rentals and investments. The method we use predominantly is the B.R.R.R.R. method. That stands for buy, rehab, rent, refinance, and repeat. We wanted to cover this in parts because it’s a big topic. Today we’ll go over buying and rehab.
The biggest thing to understand is that you’re looking to buy properties by leveraging other people’s money. You’ll be using private money lenders, otherwise known as hard-money lenders. They’ll typically give you a short-term and more expensive loan, which you’ll use to buy and fix the property, but that comes with a few pros and cons.
- There’s a low barrier to entry. You don’t need much money down, only between 5% to 15% which is about half of what a traditional bank would require. This also means your return on investment will be higher.
- Properties that need work will be undervalued. If you’re doing this right, you should have some equity in the home once you repair it.
"Everybody should consider using the B.R.R.R.R. method."
- You’ll have a higher interest rate. Because it’s a short-term, private loan, it’ll have a higher interest rate, and sometimes you need to make some upfront payments.
- There is a risk of low appraisals. You have to know your numbers or work with someone who does because a low appraisal can complicate your hard-money loan.
- You may have to hold the property for six months. A lot of these short-term loans make you hold the property for some time, which varies by the lender, but the numbers should still work out with the rent.
Just about anyone can use this method. Especially if you don’t have a whole lot of money, you can use this method to still be able to invest. If you have paid back your home, you might even be able to use that as leverage for the down payment and loan. All you need to do is assemble your team, educate yourself, and know your numbers. Everyone should consider it.
If you have any questions, are thinking about doing this strategy, or know someone who is, feel free to give us a call. We’d love to help. Also, stay tuned for the rest of the series coming soon.