Welcome to the world of BRRRR investing—a real estate strategy that can turn a humble investment into a property portfolio powerhouse.
BRRRR investing has its share of myths and misconceptions that can lead investors astray.
In this article, we’ll shine a light on five common BRRRR misconceptions, debunk them with the facts, and put you back on track to property investing success.Get Started with Park Place Finance
BRRRR investing (Buy, Rehab, Rent, Refinance, and Repeat) is a strategy for real estate investors to accumulate wealth through real estate, similar to house-flipping.
Generally, investors will purchase and rehab undervalued houses, rent them out, and use the income generated to continue purchasing new properties to earn serious money.
Let’s look at each step.
The first step involves purchasing a property, typically one that is in need of repairs or is undervalued, to optimize potential return on investment.
Investors will typically pay no more than 70% of the after-repair value (ARV) of a property, minus the cost of the necessary repairs.
Working with a flexible and responsive lender such as Park Place Finance can help facilitate this process to close more quickly, using hard money loans designed for this exact scenario.
After the purchase, it’s time to make the necessary renovations to increase the property’s value, ranging from minor cosmetic updates to significant structural changes.
Typically, it will take anywhere from six weeks to several months to rehab a property, depending on its size, the type of renovation project, and your team of contractors.
After the property’s renovations are completed, it’s rented out to tenants to create a revenue stream.
This is where your investment begins to generate passive income, covering your mortgage expenses and providing extra cash flow.
After the property has been improved and starts generating consistent income, it’s often possible to refinance the property.
Refinancing can potentially reduce your interest rate, lower your monthly payments, and allow you to leverage the property’s equity for future investments.
The BRRRR method is a cycle. Once the refinance is complete, the capital generated can be used to repeat the process with a new property to accelerate your wealth growth.
The belief that BRRRR investing requires an “all-cash purchase” is a common myth.
This false belief stems from the perception that the ‘buy’ phase of the BRRRR strategy requires a substantial amount of upfront capital, which is not the case.
While having a significant portion of cash can provide advantages, it’s not necessary for successful real estate investing.
Instead of buying a property in all cash, an investor can get a loan, such as hard money loans or traditional home loans to receive the necessary funds for property acquisition. These options typically require 20% down.
These are provided by private lenders, such as Park Place Finance, rather than traditional banks or credit unions.
Hard money loans are typically short-term (usually around 12 months), have higher interest rates, are backed by the property itself, and are for investment purposes and not as a primary residence.
These types of loans are favored by real estate investors because they can be processed quickly (around a few days), which gives a huge competitive advantage to buyers looking to purchase immediately.
They’re also more flexible and have less restrictive qualification requirements than traditional loans.
These loans are provided by traditional financial institutions, such as banks and credit unions, and have longer terms (15-30 years), and lower interest rates, but require a much more rigorous approval process.
Additionally, borrowers need to have a good credit score, a stable income, and a 30-60 day close time, which might not make sense for house-flipping.
Some people think that you need to live at the property before it can be sold, which is the case for certain owner-occupied loans, but it doesn’t typically apply to BRRRR investing.
In BRRRR investing, the goal isn’t to live in the property but to rent it out for income. However, in some situations, it makes more sense to flip the property after rehabbing it, rather than renting it out.
While holding property for rental income is a core part of the BRRRR investment strategy, it’s not a strict requirement. If you want to sell your new property as soon as you can, you’re free to do so, as long as the terms of the loan or financing agreement don’t prohibit doing so.
Many real estate investors mistakenly believe the BRRRR strategy requires renting out a property for a very long time, typically 5-10 years or more.
This misconception comes from the idea that long-term rentals are the only way to ensure steady cash flow and that waiting years is necessary for property appreciation.
However, your rental time frames can be much more flexible. The rental period could be as short as a few months or a couple of years. It all depends on the real estate investor’s strategy and the market conditions.
For instance, in a hot market, an investor might opt for short-term rentals, such as 6-12 months to take advantage of high rental rates. Or, if there’s a surge in property values, the investor might choose to sell the property after a few months, instead of several years.
The idea behind this misconception is that to maximize profits, you need to borrow as much as possible, reducing your equity to a minimum.
While this approach increases the potential for high returns, it involves significant risk—if the property value decreases, having no equity can lead to financial instability.
Luckily, the BRRR strategy doesn’t require you to max out leverage and minimize equity. It’s about finding a balance that aligns with your risk tolerance and investment goals.
This misconception assumes that only traditional banks are capable of refinancing a property.
Refinancing involves replacing your current mortgage with a new one that has better terms or cashing out on your property’s equity. While traditional banks handle more home refinances, they’re not the only option.
A wide variety of lenders, such as credit unions, online lenders, and private lending companies can provide refinancing services.
For instance, Park Place Finance specializes in hard money loans for the initial purchase and rehabilitation phase and traditional home loans for the refinancing stage of the BRRRR strategy.
Ready to break free from the misconceptions and embark on your BRRRR investing journey? The experienced team at Park Place Finance is here to guide you through every step of the way.
We offer flexible loan options, quick closing times, and personalized service to help you turn your investment dreams into reality.
Contact us today at (866) 407-1599 and let’s start building your property portfolio together.Get Started with Park Place Finance