I always prefer the BRRRR strategy, which I wrote an article about a few months back. My podcast talks about team building also, so even when you are busy with your own job you have people that can help maximize your investments...
Building A BRRRR Strategy!
Real estate investing has many great strategies that can help build wealth for your future. One of the most popular strategies right now is the BRRRR method. For those of you that are unfamiliar BRRRR stands for, Buy, Rehab, Rent, Refinance, & Repeat. This strategy can be a fast-track boost for anyone looking to begin building a real estate portfolio. This article should help new investors learn the how-tos and how-nots of BRRRR.
This first step of BRRRR is buying the right property. Not every property an investor runs across is ideal for the BRRRR strategy. The best way to ensure that your investment will work is through detailed research on the area. When I am building a BRRRR strategy for my clients, I look for neighborhoods in transition. I will research the ten-year history of sales, and rents to make sure the area is trending in the correct direction. These neighborhoods tend to have a history where the median value sits around $10k at the beginning and slowly moves to $15k then potentially within the last 4 or 5 years has increased to over $50k and now nearly $100k. This typically shows increased investor interest that is increasing value and demand from residents. The properties at the top of the market will often be in post-flip condition, featuring, LVP floors, granite counters, grey paint schemes, and recessed lighting. This is because the target resident is looking for all the features of a newly built home either closer to a city center or economic driver, or at a lower price point than other options. Ideally, BRRRR investors should be looking for a distressed home in an area like this.
Step two is the rehab portion. If you have partnered with an investor-minded property manager, they can usually help describe the features that high-quality tenants are looking for in this area. Like I stated above, this will likely include clean lines, LVP floors (these have the added benefit of lasting a long time and being hard to damage), nice counters, upgraded baths, and kitchens, matching fixtures and hardware, and for bonus value, adding in some sort of "Wow" factor can make the big difference in vacancy time. The amount of rehab needed to truly get the most out of your investment is really affected by choosing the right property to start with. The wow factor is to give potential tenants something to talk about after they view several options in the area. If potential residents can find something about your property that sticks in their minds and lets them nickname the property you will be much happier with your time on the market.
Step three is renting your newly renovated investment property. The "wow" factor here and the quality of rehab will directly affect how much you can market your property for rent and how long it will sit vacant. Many investors have seen the HGTV show house hunters and noticed that each of the three properties on the list have nicknames the buyers give them, "the one with the porch," or "the shiplap dining room house," or something along those lines. This is an important part of marketing your property to someone looking to live in your property. Remember, you are making an investment, the renter is looking for a home. Correct pricing is key, median values are much more reasonable than attempting to capture the top of the market. Vacancy cost is equal to market value multiplied by months on market. meaning if you market your property at $1500 and it sits for two months, you have lost $3000 in vacancy. Whereas dropping the price to $1350 might be the key to renting your property in a week... the difference is $1800 in rental income over a year vs $3000 in vacancy. Make sure your plans include correct market values.
Step four is refinancing. Refinancing can be done in the first year, or later depending on lenders' requirements, market conditions, and a few other potential conditions. This is another part where an investment-minded PM, or a mentor can really help the process along. If your PM was completing your rehab for you then they will have a completed scope of work that can be sent to your lender for them to re-evaluate your property. If you have chosen the correct property in a transitional area there should be several comparable properties being flipped to use in the appraisal. I have sent many appraisers my own comps and scopes to ensure my clients get the refi that they deserve.
Step five is repeating the process. Once your refi is complete you should now have plenty of capital to start the process over, and hopefully with lowered rates, and now higher returns! This is an incredibly time-consuming process that requires expert teams to maximize. If you are looking to find the right team, Revolution Rental Management has years of experience and expert education to help you succeed in your real estate investing goals. Make sure to reach out to me today if you want to get started.
