How did BRRR even come about? It encompasses so many things.

[Roger Simons]

One needs to separate each part of the process and explore in detail.  Lopping it all together under "BRRR" makes no sense.  Different techniques for different people for different areas in different situations with different needs.

First the purchase.  Layout of the house is everything.  What does the local zoning laws allow you to do?  You better be very clear on that before making your offer.  Buying a house that has lots of space you cannot rent is fruitless.  

Then the preparation for renting it. Here is where almost nobody maximizes their situation by thinking conventionally.

Then tenant selection.  Most people are very careless in this regard relying on useless "references" who exaggerate and lie for their friends.  Time with the prospect is what's needed.  Few people are willing to spend the time.  

Then tenant management.  Tenants always behave well when they first move in.  Then reality shows its ugly face.  You have to be ready to evict problem people fast and find a way of doing it amicably.  If you know of good deals in your area and can move them for free that helps hugely. Often you can find them a better deal than your place (if you're maximizing your rent) so they're happy to move!

Then deciding if its best to refinance at 80% (almost never if the rent is maximized because banks don't treat it as a business and won't recognize your huge rental income very much), sell at 100%, or use your proven rental income to qualify for a higher mortgage and buy another house as soon as you can.  If you do things radically and have radical income because of it a lot of buyers won't have the confidence they can do that as well so they won't pay you adequately.  If you're pulling in $50,000-$80,000 on a $200,000 house would anyone sane sell it for $200,000?  Often it makes no sense to sell if people don't pay you even close to what its worth.  Also you know the house and it's quirks by then and can deal with things easier than a new person will be able to with their learning curve, especially if they don't live there which few dumb real investors ever do so they're detached from their investment and out of touch with what's going on.  Often its just better to keep it and keep refining your system maximizing your income.  The challenge is often the taxes on that high income!  But if you're buying more property you can usually write a lot of stuff off if you're well organized.  Also after a while you probably have some tenants that would be happy to manage a house for you for some small compensation if its not a lot of work which it usually isn't.  That frees you to travel, do stuff like normal people and expand your holdings.  

[Michael Plante]

My dad gave me a book about BRRRR 47 years ago

was called something different.   BRRRR is just the new cool term 

Worked back then and still works now 

[Andrew Postell]

@Roger Simons some of what you are mentioning is good to consider.  Keep in mind we ONLY work with lenders that recognize our rental income. I mean, you can work with whomever you want but sometimes our success is dependent on the viability of our vendors. Everyone's market is different. Generally speaking, an "average" investor - one who doesn't know the BRRRR method, would put 20% down (or so) and buy a property off the MLS. And this is fine. Historically, this will give you about a 15% COC return on your money. But if you don't have 20% down what do you do? You do the BRRRR method. And make no bones about it - the BRRRR method is very hard to accomplish successfully. Especially if you are doing it on your own with no guidance.  But if bringing 20% down is impossible...and the BRRRR method is very hard...what is my choice?  I only have one way of purchasing properties if the other way is impossible. There are other methods of acquiring properties as well but for some of us the BRRRR method has been very successful for us.

[Andrew Syrios]

It's basically just buy and hold but buying as if you're flipping (i.e. getting a really good deal) and instead of using the equity to make a profit, using as the down payment on a refinance. We'd actually been doing this for quite a while before the term BRRRR had even been coined.

[Steve Vaughan]

And the seasoning  requirement?  Not mentioned.

97% of lenders will require at least 6 (more likely 12) months of seasoning to cash-out refi at new appraised value yet there is no S in BRRR.

[Bob Stevens]

Really not understand why such a long post. Buy it for the right amount, as you make your money when you buy, Fix it, rent it , refi cash out , but do not take to much as you want cash flow, Its not rocket science, RE 101, Oh almost forgot, hire a PM co, the fees are meaningless, 

All the best 

[Bob Stevens]

Quote from @Bob Stevens:

Really not understand why such a long post. Buy it for the right amount, as you make your money when you buy, Fix it, rent it , refi cash out , but do not take to much as you want cash flow, Its not rocket science, RE 101, Oh almost forgot, hire a PM co, the fees are meaningless, 

All the best 

BTW I have never had a loan on any of my investment props , 

[Nate Sanow]

Sacrilege ! Brrrr is perfect !!! ;) 

Well, yeah, it has some possible roadblocks or deterrents. Doesn't everything in REI?

[Roger Simons]

Quote from @Andrew Postell:

@Roger Simons some of what you are mentioning is good to consider.  Keep in mind we ONLY work with lenders that recognize our rental income. I mean, you can work with whomever you want but sometimes our success is dependent on the viability of our vendors. Everyone's market is different. Generally speaking, an "average" investor - one who doesn't know the BRRRR method, would put 20% down (or so) and buy a property off the MLS. And this is fine. Historically, this will give you about a 15% COC return on your money. But if you don't have 20% down what do you do? You do the BRRRR method. And make no bones about it - the BRRRR method is very hard to accomplish successfully. Especially if you are doing it on your own with no guidance.  But if bringing 20% down is impossible...and the BRRRR method is very hard...what is my choice?  I only have one way of purchasing properties if the other way is impossible. There are other methods of acquiring properties as well but for some of us the BRRRR method has been very successful for us.

You ONLY work with lenders that recognize your rental income?  If you are radical, especially if you're doing short term rentals and you have a lot more than the expected income for that assessed property, NO LENDERS will suddenly appraise your $200,000 house much higher.  That's my point.  In my area a 3 br middle of the road home in a middle of the road area rents for about $1500.  Rooms of about 100 sq ft rent for about $500.  But if that house has large living and dining rooms that could  be another $1400 if partitioned.  If it has a basement potentially 3 more $500 rooms down there.  
$1500    3 x $500 bedrooms upstairs
$1400    LR + DR
$1500    3 $500 rooms in basement.
$4400    Total and this is not doing short term rentals which often double or triple that income.  In my area 100 sq ft rooms are going for $50/night and many people are fully booked.  Say $4000 x 3 = $12000 monthly.  
$1500 to $12000  
You think any bank is going to believe that and assess your home at 8 times the original $200,000?  
You think any buyer is going to pay you $1,600,000 for your $200,000 home because you are getting 8x the expected revenue?  
It simply isn't going to happen.  They won't give you half of what its worth.  Not even 1/3.  Not even 1/4!!!
So you enjoy your income, pay your taxes on it and use those tax records to qualify for a much larger mortgage.  With all that money pouring in you'll have a down payment for the next place in no time.  
Now the reality is most areas are not so great for short term rentals.  But even almost triple the expected revenue from long term rentals is great.  And that would allow a mortgage to be paid off in just 5 years with several hundred cash flow every month for expenses and improvements.  

My point is as soon as you get really creative and radical, people won't reward you for it.  Your real reward is the rental income.  The challenge is minimizing your taxes on it.  

[Roger Simons]

Quote from @Michael Plante:

My dad gave me a book about BRRRR 47 years ago

was called something different.   BRRRR is just the new cool term 

Worked back then and still works now 

Were was it advocating converting the living and dining rooms to bedrooms for additional income? 

[Roger Simons]

Quote from @Andrew Postell:

@Roger Simons some of what you are mentioning is good to consider.  Keep in mind we ONLY work with lenders that recognize our rental income. I mean, you can work with whomever you want but sometimes our success is dependent on the viability of our vendors. Everyone's market is different. Generally speaking, an "average" investor - one who doesn't know the BRRRR method, would put 20% down (or so) and buy a property off the MLS. And this is fine. Historically, this will give you about a 15% COC return on your money. But if you don't have 20% down what do you do? You do the BRRRR method. And make no bones about it - the BRRRR method is very hard to accomplish successfully. Especially if you are doing it on your own with no guidance.  But if bringing 20% down is impossible...and the BRRRR method is very hard...what is my choice?  I only have one way of purchasing properties if the other way is impossible. There are other methods of acquiring properties as well but for some of us the BRRRR method has been very successful for us.

By "guidance" you mean buying courses?  Please clarify. And how are people acquiring property with no down payment?  Partnership with BiggerPocket people?

[Roger Simons]

Quote from @Andrew Syrios:

It's basically just buy and hold but buying as if you're flipping (i.e. getting a really good deal) and instead of using the equity to make a profit, using as the down payment on a refinance. We'd actually been doing this for quite a while before the term BRRRR had even been coined.

Flipping to someone who won't recognize your rental income?  Would anyone sell a property for $200,000 that is bringing in about $50,000 income annually?  People look at property conventionally, for the single family.  This is not the value of most properties.  Not even close.  They are simply worth far more if the space is used efficiently which it rarely is.  

[Andrew Postell]

@Roger Simons I personally don't like to pay for courses.  That might fit some people's personality but it doesn't fit mine.  I like to do it.  However, I still get feedback and guidance from real estate investor groups.  Bigger Pockets is a good group to me because I can learn a lot from this site and I can do a TON of learning 100% for free here.  Also though, there are local real estate groups close to you.  That meet in person.  Some might be better than others but visiting with other investors who are doing this and being successful at it is a great way to get guidance....and it can be with no cost.  Again, there might be some groups that you have to pay for but there are a lot that are with no cost.  That's the kind of guidance I mean. 

And the entire concept of the BRRRR is that we purchase with little to no money out of pocket...otherwise, why would we go through all of that hard work? Just to give a quick outline with some examples (don't hold me to the exact penny here, I just want you to understand the concepts):

1. We BUY off market properties in a state of disrepair - We've been having to buy off market to make this work for several years now.  There could be exceptions here but this is the general rule of it.

2. We BUY and REHAB at 75% of the ARV. Meaning that we have to fit BOTH the purchase price and rehab at 75% of the ARV.  This is the limit because this is what my Hard Money Lenders will provide me.  At these thresholds I am coming out of pocket for my closing costs.

3. We then RENT, REFINANCE into a 30 year mortgage, and REPEAT.

I can spend HOURS on each step here...but that's the quick and dirty to it.  Hope that helps.

[Andrew Postell]

@Roger Simons see below about your previous post.  I am trying to help here...so I hope these make a little more sense.

[Andrew Postell]

Quote from @Roger Simons:

Quote from @Andrew Postell:

@Roger Simons some of what you are mentioning is good to consider.  Keep in mind we ONLY work with lenders that recognize our rental income. I mean, you can work with whomever you want but sometimes our success is dependent on the viability of our vendors. Everyone's market is different. Generally speaking, an "average" investor - one who doesn't know the BRRRR method, would put 20% down (or so) and buy a property off the MLS. And this is fine. Historically, this will give you about a 15% COC return on your money. But if you don't have 20% down what do you do? You do the BRRRR method. And make no bones about it - the BRRRR method is very hard to accomplish successfully. Especially if you are doing it on your own with no guidance.  But if bringing 20% down is impossible...and the BRRRR method is very hard...what is my choice?  I only have one way of purchasing properties if the other way is impossible. There are other methods of acquiring properties as well but for some of us the BRRRR method has been very successful for us.

You ONLY work with lenders that recognize your rental income?  If you are radical, especially if you're doing short term rentals and you have a lot more than the expected income for that assessed property, NO LENDERS will suddenly appraise your $200,000 house much higher.  That's my point.  In my area a 3 br middle of the road home in a middle of the road area rents for about $1500.  Rooms of about 100 sq ft rent for about $500.  But if that house has large living and dining rooms that could  be another $1400 if partitioned.  If it has a basement potentially 3 more $500 rooms down there.  
$1500    3 x $500 bedrooms upstairs
$1400    LR + DR
$1500    3 $500 rooms in basement.
$4400    Total and this is not doing short term rentals which often double or triple that income.  In my area 100 sq ft rooms are going for $50/night and many people are fully booked.  Say $4000 x 3 = $12000 monthly.  
$1500 to $12000  
You think any bank is going to believe that and assess your home at 8 times the original $200,000?  
You think any buyer is going to pay you $1,600,000 for your $200,000 home because you are getting 8x the expected revenue?  
It simply isn't going to happen.  They won't give you half of what its worth.  Not even 1/3.  Not even 1/4!!!
So you enjoy your income, pay your taxes on it and use those tax records to qualify for a much larger mortgage.  With all that money pouring in you'll have a down payment for the next place in no time.  
Now the reality is most areas are not so great for short term rentals.  But even almost triple the expected revenue from long term rentals is great.  And that would allow a mortgage to be paid off in just 5 years with several hundred cash flow every month for expenses and improvements.  

My point is as soon as you get really creative and radical, people won't reward you for it.  Your real reward is the rental income.  The challenge is minimizing your taxes on it.  

hmmm, so the BRRRR method is not really for STR properties. I mean, you can use it that way if you want but these are residential properties that are underwritten by residential standards and possibly a mix of residential/commercial standards. That's the expectation we have going into this method.

The method increases the value of the property through the REHAB step. It's increased through that step because in this method we are using SOLD COMPARABLE PROPERITES (COMPS) to evaluate the property. Again, there are OTHER techniques and methods out there but we are speaking about the BRRRR method here. Long Term Rentals, REHAB to increase value, SOLD COMPS to calculate the value. And yes, in this technique a lender will give us the increased value immediately, no waiting.

In doing this for 20+ years at this point I have never paid income taxes on my rental properties....well, maybe I shouldn't say "never" maybe I pay $300 once in a while, but that's the exception. The standard method is that I have zero taxable income on my rental properties.

I hope this makes sense how I am describing it.

[Andrew Syrios]

Quote from @Roger Simons:

Quote from @Andrew Syrios:

It's basically just buy and hold but buying as if you're flipping (i.e. getting a really good deal) and instead of using the equity to make a profit, using as the down payment on a refinance. We'd actually been doing this for quite a while before the term BRRRR had even been coined.

Flipping to someone who won't recognize your rental income?  Would anyone sell a property for $200,000 that is bringing in about $50,000 income annually?  People look at property conventionally, for the single family.  This is not the value of most properties.  Not even close.  They are simply worth far more if the space is used efficiently which it rarely is.  

I'm not really sure what you're getting at. A SFR is only worth what someone will pay for it and investors won't pay more than homeowners (usually at least) regardless of its rental income. So if no one is willing to "pay what its worth" it just means it ain't worth that much. As far as the example you just gave, that would amount to a 4% rent/cost ratio which basically doesn't exist. Maybe an AirBNB or something like that but not on a traditional rental. So it really doesn't apply.

[Roger Simons]

Quote from @Andrew Postell:

@Roger Simons I personally don't like to pay for courses.  That might fit some people's personality but it doesn't fit mine.  I like to do it.  However, I still get feedback and guidance from real estate investor groups.  Bigger Pockets is a good group to me because I can learn a lot from this site and I can do a TON of learning 100% for free here.  Also though, there are local real estate groups close to you.  That meet in person.  Some might be better than others but visiting with other investors who are doing this and being successful at it is a great way to get guidance....and it can be with no cost.  Again, there might be some groups that you have to pay for but there are a lot that are with no cost.  That's the kind of guidance I mean. 

And the entire concept of the BRRRR is that we purchase with little to no money out of pocket...otherwise, why would we go through all of that hard work? Just to give a quick outline with some examples (don't hold me to the exact penny here, I just want you to understand the concepts):

1. We BUY off market properties in a state of disrepair - We've been having to buy off market to make this work for several years now.  There could be exceptions here but this is the general rule of it.

2. We BUY and REHAB at 75% of the ARV. Meaning that we have to fit BOTH the purchase price and rehab at 75% of the ARV.  This is the limit because this is what my Hard Money Lenders will provide me.  At these thresholds I am coming out of pocket for my closing costs.

3. We then RENT, REFINANCE into a 30 year mortgage, and REPEAT.

I can spend HOURS on each step here...but that's the quick and dirty to it.  Hope that helps.

What mystifies me is why people would refinance at 80% or less when the property is worth so much more as a business.  If you've doubled the typical rent that house is simply worth a lot more.  Banks never see that as they assess it like a city would:  By how much some clueless single family would buy it for.  They're not acknowledging the huge increase in rental revenue that house now brings in.  I can see for many, once they get going after a while, may be inclined to not bother with financing at all.  Especially if they like the idea of an insurance free property. Insurance often puts a lot of requirements on an owner.  I'm not talking about mortgage insurance.  Rather insurance for things like fire.  But I wouldn't do that unless I lived there of course.  I know it sounds risky but there are many ways of minimizing fire.  Non smoking tenants (smokers often break the rules and sneak a smoke inside) no candles and knowledge of electrical appliances throughout the house hugely diminishes risk.  Also lots of fire extinguishers with full face respirators so people can see and breathe in smokey rooms!  If people can attack the fire right away its so much safer.  The real danger is structural collapse.  Once its been going for a while its just too dangerous being inside.  But in the beginning its fine if you can see and breathe OK in the smoke.  Nobody can see anything in a smokey room.  The smoke just burns your eyes.  Its crippling.