How does the BRRRR method work?

Question

Can someone explain to me how the BRRRR method works?

I just recently purchased a rental property back in February and I want to restructure my current loan. How does the process work? Do I have to own the property more than 6 months? Does my credit score need to be great. Do I need closing cost etc...

Thank You

Ben Sears · Answer

@ShawnRandolph There are a ton of posts and webinars on the BRRRR method on BP. I'll try to answer some of your specific questions in a quick post: - The process of BRRRR (buy, renovate, rent, refinance, repeat) is just that...you purchase a property for cash, hard money, private lender, etc, renovate the property with the short term loan, rent the property, then refinance into a traditional mortgage. - Seasoning, or owning the property a certain amount of time before you refinance, is up to your lender. Typically, a big bank is going to make you wait 6-12 months. Look at your community banks that don't sell their loans and fund them in house. They have much more flexibility. In fact, a bank that I'm looking at working with has no seasoning at all. - Your credit score is always a factor in a banks lending decision. The better your score and credit history, the better terms you will likely receive. - You will pay all of the typical closing costs, attorney's fees, etc. Pro tip: find a bank that will roll your pay your closing costs or roll them into your mortgage so you don't have to come out of pocket at closing. - The biggest hang up people have on the BRRRR method is that banks will typically only finance 75-80% LTV (loan to value). For example, you buy a property, renovate it, and rent it for a total of $100k invested. A bank is going to write you a mortgage for $75-80k max. You win the BRRRR method by having a property that appraises for 20-25% more than what you have invested. If you have a total of $75k invested in your property and it appraises for $100k then the bank writes you a mortgage that covers your entire investment without them knowing it. Any mortgage written above your investment costs would be a "cash out refinance" where you get your investment back plus cash. This is a personal business decision that you should make based on your risk tolerance and ability to have rent pay the mortgage along with your CapEx, profit, etc. Hopefully this makes sense. Catch one of the webinars on BRRRR or pick up the book from the BP bookstore. It's incredibly enlightening.

Shawn Randolph · Answer

I just recently listen to the podcast episodes you requested and 301 sounds a lot like how I purchased this property in Michigan. I have never stepped one foot inside the house, I have a great property management team and collecting full rent for the property. Can't wait until I can repeat this process again.

Shawn Randolph · Answer

Yes I am a reader and planning on picking up the book this weekend!!!

David Nacco · Answer

@Shawn Randolph That’s awesome! David Greene’s BRRRR Book is excellent also if you are a reader

Shawn Randolph · Answer

Ok I understand the process of BRRRR and I figured out my problem which will be credit. But if I'm able to find a credit partner then I will be fine. Thanks for the tips!!!

Kenneth Garrett · Answer

@Shawn RandolphRemember the lettersBuy RehabRentRefinanceRepeatThe concept is you buy the property at a discount. Typically they need rehab work. The rehab forces equity in the property. Once the rehab is compete you secure a tenant. By completing a quality rehab you attract better tenants and a higher rent. Remember the property needs to appraise high enough to get all or most of your money out of the deal. Your credit score is important to be able to refi the property or bring in a credit partner. You then repeat the process.

Shawn Randolph · Answer

That's what I want to do...refinance into a traditional mortgage and keep repeating the process. Thanks for the info and the tips for the closing cost.

David Nacco · Answer

@Shawn Randolph the BP podcast did a great episode entirely on the BRRRR method. Here’s some resources. @Brandon Turner video on the BP YouTube channel. - An Intro to BRRRR Real Estate Investing [Fixer Upper Rentals!]: https://youtu.be/udWrw5vhm2kThe BRRRR calculator: https://www.biggerpockets.com/brrrr-calculatorhttps://www.biggerpockets.com/blog/2016-06-02-bp-podcast-177-using-fixer-upper-rentals-brrrr-to-achieve-financial-independence-with-ben-walhoodhttps://www.biggerpockets.com/blog/biggerpockets-podcast-237-partnerships-brrrr-investing-working-full-time-ian-reeveshttps://www.biggerpockets.com/blog/biggerpockets-podcast-301-incredible-power-long-distance-brrrr-investing-alex-felicehttps://www.biggerpockets.com/blog/biggerpockets-podcast-320https://www.biggerpockets.com/blog/biggerpockets-podcast-312-conquering-nightmare-rehabs-working-full-time-brrrr-investor-james-masottihttps://www.biggerpockets.com/blog/biggerpockets-podcast-327-buy-rehab-rent-refinance-repeat-method-david-greene