This strategy works with very little cash out of pocket, especially compared to traditional investing methods. Lower out-of-pocket costs mean higher ROIs. For example, if the investor ends up having only $10,000 in the deal, but the cash flow is $2,500 per year, that’s a 25 percent cash-on-cash return. Plus, equity is built during the rehab.

Get Cash Back

Under the BRRRR model, the investor refinances the property based on the ARV after renovations, not what was initially paid. Because of this, they are not only able to pull out the cash that was put in when purchased – they can sometimes pull out more, which can make buying the next property that much easier.

Property Appreciation & Equity

Because the investor is starting with a renovation project, they can buy at a lower cost and do the renovation. The improvements to the property build equity and allow for long- term property appreciation.

Higher Rent Potential

After the Rehab phase of the BRRRR is complete, the investor has a home that is in pristine condition. The property is more attractive, and renters could be more willing to pay a higher rate.

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***Cons***

Potentially Two Closing Costs

The BRRRR strategy includes two separate loan transactions before the model is complete, the purchase and refinance of the property. Each loan has closing costs and lender's fees involved. Investors must be diligent in finding the right lending partner, who they can trust, to work with on the project.

Possible Low Appraisal

When refinancing, an appraisal on the property is required. There is always the possibility of the property not appraising well. That’s why proper planning, doing the correct math, and developing a solid budget when going into the deal are essential.

Bad or No Tenants

In the BRRRR strategy, the pressure is on to have tenants in the home before refinancing, as they want their costs covered and having the property rented is often required by lenders. This added pressure can cause hasty investors to skip imperative parts of the screening process to get renters, not considering that quality returns depend on quality tenants. Investors need to resist the urge to rush through this process and properly screen for quality renters – their income relies on it.

A Rehab is Still a Rehab

Large rehab projects often come with complications. There are many moving parts to the rehab process. Investors must deal with contractors, tackle unknown problems when they arise, work through unexpected expenses, and be able to pivot on a dime. Let’s face it, extensive renovation projects are not easy, and investors need to be ready for anything when going in.

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