How fast and how can I scale with BRRRR

Question

Hello all,

I am a 21 year old college student who has been very into real estate investing as well as pursuing a degree in Construction Management with a focus on residential real estate. Getting right into it, I have been seeing many posts about people doing the BRRRR method and all of it is very good to soak in. I am really wondering if someone can layout how to jump into it and go about completing the BRRRR method. Some questions I have are, and this is an example and not real, if I buy a SFH for $100k that has an ARV is $200k, assuming i use $50k on renovations, is the remaining $50k my profit to move onto the next project with or am I getting this completely wrong.

Something about me that would be helpful. My 2 brothers and myself have about $210,000 cash in the bank waiting for a real estate project. We have a cash purchased SFH in Kansas City MO that we got for $75k cash, that rents for $875/mo (After management fees, taxes, and insurance, we profit $580/mo). Myself and 1 of my brothers are in college, while the other brother is 1 year out of college making approx. $70,000/ year pre-tax. What should be our steps to scale the cash we have into giving us a good portfolio.

Thank you! If im missing any info I would be happy to add.

Julie Muse · Answer

Hey Jonathan,

First off, let me just say, you and your brothers are doing something incredible at such a young age! Being so forward-thinking and having already dipped your toes into real estate is amazing. Kudos to you all! Y'all are like the real estate version of the Three Musketeers – all for one and one for all!

Understanding the BRRRR Method

The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is a fantastic way to build a real estate portfolio. Let’s break it down with your example:

• Buy: You purchase a single-family home (SFH) for $100k. Easy peasy, right?
• Rehab: You spend $50k on renovations. Time to channel your inner HGTV star.
• Rent: You rent out the property. Let's say after renovations, your property can be rented at a higher rate. Hello, passive income!
• Refinance: You get the property appraised, and it’s valued at $200k. The bank typically offers 70-75% of the appraised value. If they refinance at 75%, you get $150k (75% of $200k). This part is like magic – watch your money come back to you!
• Repeat: You use the $150k to pay off your initial investment of $100k purchase price + $50k renovation, essentially getting all your invested money back to move on to the next project. Rinse and repeat – like doing the laundry but way more profitable.

So, yes, if your numbers work out perfectly, you get your initial investment back and can use it to fund the next project. Your profit would be in the equity you’ve built and the cash flow from renting the property.

Steps to Scale Your Portfolio

With $210k in cash and already owning a rental property in Kansas City, you’re in a strong position. Here’s a plan to help you scale:

• Find the Right Deals: Look for properties that fit the BRRRR model. Focus on areas with good rental demand and potential for appreciation. It’s like hunting for treasure – except your map is Zillow.
• Network: Leverage your connections in Kansas City. Network with local real estate agents, wholesalers, and other investors to find off-market deals. Think of it as making new friends with benefits – of the real estate variety.
• Leverage Your Cash: Use your cash for down payments and renovation costs. Once you’ve completed a BRRRR cycle, refinance to pull out your initial investment and reinvest it. Keep that money moving like it’s on a treadmill.
• Build a Team: Have a solid team in place – a reliable contractor for renovations, a property manager if you don’t want to self-manage, and a good lender. Your dream team – like the Avengers, but for real estate.
• Educate Yourself: Keep learning. Real estate is all about continuous learning. BiggerPockets, real estate books, and podcasts are great resources. The more you know, the more you grow – like a well-watered plant.

You’re already on an impressive path, and with the BRRRR strategy, you can scale up quickly. Keep pushing forward, stay focused, and don’t be afraid to take calculated risks.

You and your brothers are truly inspiring – keep up the fantastic work!

Best,
Julie Muse

Joehn B. · Answer

you cash-out refinance after title seasoning and get 70% of ARV (200k) back so in your example you would get 140K back and have 60k in equity left in the property.  You need to do the math carefully and make sure it cash flows under that new loan (70%ARV) at your new rate.   that 140k is what you go use for downpayment on the next deal.

Jake Baker · Answer

@Jonathan Palumbo

I agree with @Ko Kashiwagi regarding the cash out portion.

Some BRRRR nuances to be weary of:

It is easy to underestimate your rehab budget. - make sure to get bids from multiple contractors.

It is easy to overestimate your ARV. - Have an agent pull recent comps for you

It is easy to underestimate the timeline. - whatever a contractor says, add 4 weeks.

Julie Muse · Answer

Hi Jonathan,

Exactly, you’ve got it! When you pull out the 75% value (which in your example is $150k) and use that to pay off your initial $100k investment and $50k renovation costs, you’re breaking even in terms of cash. But here’s where the magic happens:

Real Profit

Your real profit is indeed the $50k equity left in the property. Plus, you’ve got the rental income flowing in. That equity is like money in the bank – it’s part of your net worth and can be tapped into later if needed.

Ongoing Cash Flow

Don’t forget the rental income! Once you rent out the property, you’ll start seeing cash flow from the rent payments, minus your expenses. That’s the beauty of the BRRRR method – you’re building equity and generating cash flow at the same time.

So, in a nutshell:

• Equity: The $50k equity left in the property.
• Cash Flow: The ongoing rental income after expenses.

Keep leveraging these strategies, and you’ll see your portfolio grow steadily. You and your brothers are doing fantastic work – keep it up!

Best,
Julie Muse

Jonathan Palumbo · Answer

So in the case where im in for 150K on initial investment + renovations and I pull out the 75% value to give me 150K and use that to pay off the initial investment + Renovations im technically break even in that case, but my real profit is the 50K equity left on the property?

Ko Kashiwagi · Answer

Hi Jonathan,

If the ARV is 200k and you do a cash out refinance at 75% LTV, you'd leave 50k in equity and take out 150k minus closing cost that you can use on your next project. So technically the 50k is a profit but it would be left as equity as lenders won't refinance out 100% of the equity.

Jonathan Palumbo · Answer

So instead of using any of that 140K to pay off renovations should I just let the monthly cashflow pay for the loan used on renovations, or should I just use cash for renovations and have the only loan in the whole deal be the refinancing?

Julie Muse · Answer

Hi Jonathan,

Exactly, you’ve got it! When you pull out the 75% value (which in your example is $150k) and use that to pay off your initial $100k investment and $50k renovation costs, you’re breaking even in terms of cash. But here’s where the magic happens:

Real Profit

Your real profit is indeed the $50k equity left in the property. Plus, you’ve got the rental income flowing in. That equity is like money in the bank – it’s part of your net worth and can be tapped into later if needed.

Ongoing Cash Flow

Don’t forget the rental income! Once you rent out the property, you’ll start seeing cash flow from the rent payments, minus your expenses. That’s the beauty of the BRRRR method – you’re building equity and generating cash flow at the same time.

So, in a nutshell:

• Equity: The $50k equity left in the property.
• Cash Flow: The ongoing rental income after expenses.

Keep leveraging these strategies, and you’ll see your portfolio grow steadily. You and your brothers are doing fantastic work – keep it up!

Best,
Julie Muse

Jonathan Palumbo · Answer

Did you mean in my cashflow currently or the cashflow im hoping from the property.

This was a hypothetical situation but in this case with kansas city market the cashflow from this property would be 300/m while my current cashflow is 580/m

How fast and how can I scale with BRRRR

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