5 Misconceptions about the BRRRR Method of Real Estate Investing

[Robin Simon]

Adapted from a twitter thread, thought I  would share here:

The BRRRR method of real estate investing (Buy ➡️Rehab➡️Rent➡️Refinance➡️Repeat) has become a popular strategy in recent years to maximize gains in investment real estate

Popularized by David Greene of BiggerPockets and detailed in the excellent namesake book (https://store.biggerpockets.com/products/buy-rehab-rent-refinance-repeat) it has been utilized by many investors to scale rapidly build great wealth through real estate

What has made BRRRR so popular? Key is the ability to recycle capital quickly (use the same $$ to buy multiple properties per year) and to build up a recurring revenue portfolio that creates income streams every month. However, as we go through a volatile market with lots of uncertainty in real estate, there is a lot of uncertainty around the ? of does BRRRR still make sense. Analysis paralysis is common in RE and to make money, your BRRRR does not NEED to be perfect. Perfect = enemy of good

Here are 5 misconceptions about BRRRR investing that should not be holding you back:

1) You Need to Buy In All Cash to Start

Traditionally BRRRR deals are to be bought in all cash, in order to close quickly and win the deals vs. investors w/funding contingencies and risk. Especially in the super-hot and competitive market of 2020-2021. This is not at all necessary. Using a private bridge lender that can finance the purchase/rehab loan quickly and efficiently will absolutely do the trick. You absolutely don't have to wait until you have every penny saved up in cold hard cash to get started.

2) You Have to Be Committed to Hold (vs. Flip)

To the contrary, the best deals have optionality and ability to unemotionally pick the best strategy once rehab is finished (instead of being locked into holding permanently or flipping into an uncertain market). Particularly in volatile markets like this, its actually the superior strategy to crunch the numbers once rehab is complete, and have the ability to sell or rent/refinance and hold once the property is fixed up. Hold firm on price and keep/refinance if it isn't hit.  This great recent BP podcast https://www.biggerpockets.com/... featuring James Dainard is a good example of this, he mentions some of his most lucrative investments over the years were "failed" flips he decided to hold and BRRRR

3) You Need To Rent It Out Long Term

With property values and interest rates skyrocketing this year, ability to cash flow can be tough, especially with high leverage &in top markets. Many investors think they can't refinance unless rent > PITIA and a lease is signed, a tough ask. However, a long-term lease that cash flows the property is NOT necessary. Savvy investors are utilizing investment properties as short term rentals (airbnb, etc.), which generally generates 2X income as a LTR. Hold as a STR for the "Rent" piece of BRRRR and double cash flow! AirBNBRRRR is the new BRRRR!

4) You Need to MAX Leverage and Leave No Equity in Your Property

Yes, a big draw for the BRRRR method is the seductive prospect of the cash-out refinancing leaving zero basis in your property and having a cash flowing rental for "free". BUT, with interest rates rising, its not absolutely necessary to take max leverage, especially heading into a potential recession - its OK to be conservative. Leaving $ in the property and a lower LTV (70% or 65%) is SMART, not a crime 😉. A cushion and higher DSCR is 100% OK.

5) You Need a Bank to Refinance

A lot of would-be BRRRR investors are hesitant cuz of nerves about the third R - refinance. What if I hit a snag and don't qualify? What if the "seasoning" requirements make me hold for a year? What if the bank stops lending for whatever reason?The Good News? You don't need a traditional bank, there are private lenders that are super flexible and can provide refinancing quickly, efficiently and w/ competitive rates and leverage. BONUS - find a lender that do BOTH the purchase/rehab loan AND the cash-out refi

Feedback, thoughts, questions welcome