Alright, listen up, folks! If you're on a mission to build real estate wealth at warp speed, then you've gotta check out the BRRRR strategy - buy, rehabilitate, rent, refinance, and repeat! It's like a one-way ticket to turning a small investment into a massive stack of cash.
Here's the breakdown: Step one, get a property, preferably one that needs a little TLC. Step two, work your magic, rehabilitate that sucker until it shines like a diamond. Step three, you find some cool tenants to fill the place and start raking in the rent. Now, here's where it gets even better. Step four, refinance that loan. Bam! Suddenly, your equity shoots up like a rocket, and you're holding the keys to a whole new world of opportunities.
The key to crushing it with the BRRRR strategy is finding those hidden gems - undervalued properties that need a little love. You do that, and you're set to maximize your profits and soar towards building massive wealth. So here's a broader explanation of those key steps.
Get an Agent
If you're ready to take on the BRRRR strategy and unleash the real estate beast within, then here's what you've gotta do. First, get yourself an awesome real estate agent who knows their stuff and can help you hunt down those perfect properties. Not all agents are made equal; some have more experience in construction or property maintenance, others in real estate investment and number crunching, and others in style and interior design. When it comes to real estate investment, you want to find an agent who, first and foremost, is good with numbers and evaluating real estate investments. This can be weighed in terms of potential appreciation or cash flow potential, but in either case, you want someone to give you a clear picture of the return on investment (ROI). Additionally, if you can find an agent who has some former experience in the construction industry, that can also be really handy. While you'll still want to rely on a professional inspection when the time comes, a knowledgeable realtor can give you some early insights into property condition red flags. This could be things like water damage on the ceiling, a shifted or cracked foundation, or peeling roof tiles. Small hints that a major renovation could be coming down the pipe.
Next, lock in that financing! You gotta have the cash to make it happen, so get that sorted out before you start looking for a home. If you don't have a mortgage broker already, your realtor should be able to help you find a trusted advisor to source the financing you need. Getting a preapproval first is valuable because it tells you what you can realistically afford. Don't waste your time looking for a home in the $1.2M range to later find out that you're actually only preapproved for $1M. Get this confirmed first so you're looking at the right properties from the start. In addition to mortgage financing, you may also need a construction loan to cover contractors and materials. Your broker can help you out here as well.
Find the Right Property
Look for the perfect property that could really shine with some TLC and make you some decent cash flow once it's improved and rented out. This part is tricky because a good deal isn't necessarily just about price. It's also about what you get for that price. I recently saw a 2 suite home in Victoria on a large lot that was listed for $650k. For anyone local to Victoria, at surface level, that sounds like a screaming deal! But in reality, the home was a tear-down since it would probably cost more money to renovate than to tear it down and replace it with something new. Suddenly, that screaming deal is more like a screaming terror! Don't get sucked into a dilapidated property that will likely become a money pit. Instead, look for properties that have good bones and need a little updating. If you have a solid house that just needs some refreshing, then you're offsetting a lot of risks upfront and avoiding the substantial cost that comes with addressing major structural issues (i.e., roof, plumbing, foundation, electrical system, etc.). Then, once you find a promising property you want to negotiate a below market price to lock in a sold investment return up front.
Rehab Your Property
Alright, you've got your property, you've got the financing, now get those contractors on board to work their magic. Your real estate agent can be your right-hand man here, hooking you up with top-notch contractors so you can get quality work at a good price. If you're handy you can even do some of this work yourself which will save you a ton of money on labour. However, make sure you do your research before jumping in. Simpler projects like painting, flooring, or updating cabinets might be fine to take on by yourself. However, you'll want to call in the professionals where greater risk is concerned, things like electrical and plumbing should normally be handled by the professionals. If you decide to replace your own roof and don't know what you're doing that could lead to serious issues like leaking, mold and permanent structural damage which can cost countless thousands to fix. If you're going to do your own work, make sure you know what you're doing!
Rent it Out
Once that rehab is complete, it's time to unleash the property into the wild world of rentals! you want to find the best tenants and strike a good rental rate for each suite you're renting out. When it comes to buying rental properties, ideally you want to do all of your calculations up front. How much will the home cost, how much for renovations, what could you resell it for in the current market if you had to. In addition to assessing the resale value you also want to assess the carrying cost and cashflow potential ahead of time. How much will your mortgage be? How about insurance, maintenance, utilities, strata fees? Square this up against your estimate of local rental rates and that will tell you how much potential cash flow your investment purchase could produce. By figuring this out upfront, you can predetermine how much you'll need to charge down the road. Ideally you want to make conservative estimates based around the local average rental rate. That way you can charge a reasonable amount, get lots of interest, and be picky about who you select as tenants.
Lastly, the grand finale - refinance that loan, and watch your equity rise like the sun! Refinancing, is your secret tool to unlocking investment capital without having to sell. Once you've completed a major renovation and started renting out your property you can get the value of your property appraised. With the added improvements this appraisal will confirm the increased value of your property. Once confirmed you can refinance your home based on the higher equity value it now has. Refinancing allows you to pull out some of that additional equity in the form of cash which you can take and use to invest in your next rental property. Two things to keep in mind here. First off, refinancing will increase your carrying cost since you're increasing the value of your property and borrowing more money against it. Increasing your property value will also raise your property taxes. Both of these factors lead to a higher carrying cost. Second, since refinancing raises your carrying cost that means you need to be really intentional about cashflow up front. When you go to purchase a property a slim cash flow margin may be okay if you're just wanting to buy, improve, and hold an investment property. However, if you also want to refinance later then you'll want to estimate your future mortgage cost after you refinance. In this case you need to have enough initial cash flow that this income will cover your future carrying costs even after you've refinanced. In Victoria this is difficult to accomplish since home prices and mortgage costs are so high compared to rental income. So, for locals thinking about real estate investment you'll often find that there are better opportunities further up island.
The final R of the BRRRR strategy is repeat, take the cash you've received from refinancing that first property and go do it again! Now you have the power to keep the ball rolling, snagging more properties or diving into new ventures.
So there you have it, the BRRRR strategy laid out for you in all its glory. If you follow these steps, you'll be on the fast track to building real estate wealth like a pro. It's like a high-speed ticket to financial freedom! Get out there and make it happen friends!
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I am a Victoria-based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty, and hard work have been essential pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.
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