I have read a number of articles and books about the BRRRR method. It is "marketed" as a way to scale up quickly, but I had a question regarding the method.
It seems, obviously, that the method is strongly focused on the refinancing of the property post rehab. However, given the way interest rates have gone, I wonder if it is still viable to do the BRRRR in 2025 on homes purchased in 2020, or 2022, given that you are probably giving up favorable interest rates when you do your refinance for current rates.
Is the BRRRR more feasible when your refinance occurs at a similar interest rate as the rate at which you purchased the property?
Is the BRRRR method still achievable in 2025? I guess it's all dependent on how much equity you can provide to a house during the rehab portion of the BRRRR method.
Fairly New Real Estate investor with a 3 home portfolio. Trying to decide what my options are for 2025. Thanks for the conversation.
1. A purchase you made in 2020 or 2022 would not really be thought of as a BRRRR because I'm guessing those units have been rented since then and were not just sitting vacant with you paying on those mortgages. A BRRRR is when you buy a house (often uninhabitable) and rehab it BEFORE you rent it out.
2. Interest rates don't matter (much)! lol. People focus on the rates because they are a singular number and easy to understand but you can lose money on a rental at a low interest rate and get rich paying a high interest rate. It isn't the be-all end-all.
3. Do a case study. Put together a spreadsheet and compare the performance of the subject property if you keep renting it as is for the next 10 or 20 years versus if you rehab and refinance. Keep in mind the 3 main ways you make money (cash-flow, mortgage pay-down, and market appreciation).
4. Is BRRRR still achievable in 2025? Of course! You mentioned about the difference between the purchase interest rate and the refinance rate. In many/most BRRRRs that is irrelevant because when the property is bought it is often not fanciable using traditional mortgages. They are bought either with SHORT term high interest (hard money) type loans or purchased in cash. In either case there is either no loan to purchase or a short term loan that could not be used to hold the property long term. So, its interest rate is irrelevant and likely HIGHER than the refinance rate anyways.
In order to create enough equity to refinance out all of the investment OR MORE targeting properties that need substantial rehabs is where BRRRRs bread is buttered.
congratulations on your success so far. a few comments.
1. is BRRRR still achievable in 2025? yes, but it's much more difficult. you're just not going to cash flow after you refinance - you might even be slightly negative. so it's an equity strategy, not a cash flow strategy. additional challenges are the inventory shortage and good contractors being extremely busy. so every step is tougher.
2. you don't really compare the interest rate when purchased and the interest rate when refinancing - that is apples and oranges. typically (as you probably know) you buy something distressed, with either cash or hard money, you fix it up, and then you refinance into long term debt. you don't buy with long term / conventional financing and then refinance again into long term / conventional financing - many properties are too distressed to even qualify. so the "interest rate when purchasing" is irrelevant - the deal either works or it doesn't.