How to Finance Your BRRRR Strategy Investments

One of the common strategies of real estate investing today is referred to as the BRRRR method. BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat.

Many real estate investors that are getting started in investing often have questions about how to finance their BRRRR properties. Following is a short summary of some of the general terms and financing options available for real estate investors pursuing the BRRRR method.

Step 1: Buy - Financing the Purchase of Your BRRRR Property

There are a several options investors have when purchasing a rental property:

• Cash: If sufficient cash is available, a cash purchase is always an option. For many real estate investors, purchasing properties with cash is not an option, so financing is needed.
• Seller Financing: An investor can always try to negotiate seller financing if the seller is motivated or open to providing seller financing. Terms for seller financing can range widely depending on the motivation of the seller and negotiation skills of the investor.
• Private Lenders & Hard Money Lenders: Another option available is using a private or hard money lender to obtain financing for the property.

General Terms for Private Lenders and Hard Money Loans:

• LTV: Many private and hard money lenders will provide up to 80% Loan to Value (LTV) for the acquisition of a BRRRR property. If you are purchasing a $200,000 property, the lender will provide a mortgage of $160,000 toward the acquisition of the property.
• Points: Hard Money and Private Lenders will often charge points somewhere in the 1 – 5% range.
• Interest Rates: Interest rates often range from the 6 – 12% depending on the type of property, credit score of the borrower, LTV, and other criteria.
• Term: The term of the loan is often between 6 – 36 months.
• Payment: These loans are typically interest only.

Step 2: Rehab - Financing the Rehab of Your BRRRR Property

Real estate investors should know what rehab work the property needs prior to purchase and have an accurate budget and schedule for the rehab work to be completed.

If the investor is using their own cash, they can proceed with implementing the rehab once the property is purchased. If seller financing was utilized for the purchase, it is unlikely that the seller will also finance the rehab of the property, so the investor will need to have the necessary funds to complete the rehab.

For investors utilizing private lenders and hard money loans, the rehab costs can often be incorporated into the loan.

General Terms for Financing Rehab Costs with Private and Hard Money Loans:

• Private and Hard Money Lenders will often finance both the acquisition and the rehab costs for your BRRRR property.
• The rehab costs are typically factored into the initial loan approval. The buyer should provide a budget and schedule for completion of the rehab work.
• Lenders will often provide up to 75% of the After Repair Value (ARV) for the purchase and rehab of a BRRRR property.
• The ARV is the value of the property once the rehab has been completed. Nearby comparative properties should be utilized to obtain the ARV.
• The investor will likely be reimbursed for the rehab according to the approved budget and schedule.

Step 3 – Rent

The investor will want to make sure that the original loan term is sufficient not only to cover the rehab of the property, but the length of time for the property to be marketed and rented out as well. It is important to know what the market rent for the property is as well as the current vacancy rate and average length of time that rental properties in the area are on the market when initially analyzing the purchase of the property.

Once the property is rented, the investor can complete a cash-out refinance to pay off the purchase and rehab loan, and if executed well, receive some of the equity created through the improvements made to the property.

Step 4 – Refinance

The investor has several options when refinancing their BRRRR property. Many banks, credit unions, and other traditional mortgage lenders will offer refinancing options once a rental property is in rent ready condition and rented out. However, if an investor is building a real estate portfolio, they will likely want to refinance their BRRRR property using a private lender rather than a traditional mortgage lender.

Many private and hard money lenders provide long-term rental property financing options. Investors can often utilize the same lender that provide the acquisition and rehab financing to provide the refinancing of the property as well.

General Terms for Refinancing Your BRRR Property:

• Private and hard money lenders providing long-term rental property financing will often refinance at up to 80% LTV.
• Interest rates are competitive based on the current prime rate.
• Terms are generally 30 years.
• The investor can obtain a cash out refinance receiving a portion of the equity built up in the property by increasing its value

Step 5: Repeat

Once an investor knows how to finance their BRRRR properties, they can then repeat the process.

Good luck in financing your BRRRR properties and building your real estate portfolio!