How to Start Real Estate Investing Using the Brrrr Method
If you want to start investing in real estate, the number 1 strategy to launching your career and portfolio is the Brrrrr method.
Many, top YouTubers and influencers like Ryan Dossey, Thach Nguyen, and people on Bigger Pockets attribute their success to starting with the Brrrr method.
So let’s get started and show exactly how to do it right…
What is the Brrrr Method and Why?
Buy – Rent – Rehab – Refinance – Repeat
The Brrrr Method Defined:
The Brrrr method is a real estate investing strategy (specifically buy-and-hold) that allows someone to “recycle” their money from one property to the next therefore escalating the growth of their real estate portfolio.
And… No… it’s not what you think when you step out on a chilly winter morning. It’s a clever acronym that encapsulates a strategic approach to real estate investing. So, what exactly is it?
The Brrrr method stands for **Buy, Rehab, Rent, Refinance, and Repeat**.
1. Buy: Start by purchasing a property, ideally below market value, that has the potential for a value increase with some repairs and updates.
2. Rehab: Next, fix up the property. This could range from cosmetic changes like painting and updating fixtures, to more in-depth renovations like changing floor plans or redoing entire kitchens and bathrooms.
3. Rent: Once the property’s spruced up, it’s time to put it on the rental market. By securing a tenant, you’ll start to generate a steady income stream.
4. Refinance: After the property has been improved and rented out, many investors refinance the property with a new mortgage. The aim is to pull out some or all of the money initially invested. Due to the increased value from the rehab, you can often refinance for more than your original purchase price.
5. Repeat: And here’s the beauty of the Brrrr method. Once you’ve refinanced and pulled out your capital, you can take that money and use it to start the process over with a new property.
By cycling through this method, you not only grow your real estate portfolio but also keep your capital moving, allowing for continued growth. Imagine a snowball rolling downhill, growing larger and faster with each rotation. That’s the Brrrr method in action for a real estate investor. It’s a powerful strategy, especially for newcomers, to quickly scale and develop a robust portfolio.
And there you have it – the Brrrr method succinctly explained. Whether you’re a newbie or seasoned pro, this approach can be the catalyst to elevate your real estate game. So, are you ready to give it a spin?
Why You Should Start with the Brrrr Method
Ah, stepping into the world of real estate investing feels a lot like diving into a deep ocean – vast possibilities, but where do you even begin? Enter the Brrrr method. Here are some compelling reasons to consider this approach:
1. Capital Efficiency: Consider Jane, who bought a rundown property for $80,000, spent $20,000 on rehab, and after improvements, its value shot up to $150,000. By refinancing, she managed to get back most of her initial investment, effectively owning and earning from a property while having most of her money back in her pocket. This is the magic of the Brrrr – it allows your money to work harder and smarter.
2. Accelerated Portfolio Growth: Mike, a budding investor, had only $100,000 to start. Instead of sinking it all into one property, he used the Brrrr method. Within a year, he was already onto his third property, using almost the same seed money. His portfolio growth was exponential compared to traditional investing.
3. Hands-on Learning: Think of it as an MBA in real estate. You get to learn about property valuation, rehabbing nuances, the rental market, and refinancing mechanics all in one cycle. It’s the practical school of real estate, minus the tuition fees.
4. Income Stream Creation: After the rehab phase, each property starts generating rental income. So while you’re rolling your initial capital into the next investment, the previous ones are already churning out monthly rent checks. Imagine having five properties in two years, each supplementing your income. It’s not just wealth-building; it’s creating an income stream.
5. Leverage Opportunities: Banks love assets. Once you’ve got a spruced-up property with a tenant, securing refinancing is often easier and on better terms than the initial financing. It’s like showing up to a date in a tuxedo instead of gym shorts. You’re just more appealing.
6. Market Downturn Resilience: Let’s face it; markets aren’t always sunny. But with the Brrrr, even in a downturn, you’ve got multiple exit strategies. You can hold and rent, benefiting from the rental income, or sell if the price is right. It’s like having an umbrella and sunglasses, ready for all weather.
Starting with the Brrrr method isn’t just a strategy; it’s an immersive experience, a real estate boot camp that prepares you for bigger ventures ahead. It’s like learning to drive in a manual car; once you’ve got that down, automatic is a breeze.
How much do you need to start the Brrrr method?
This depends on the market you’re targeting.
Most people start in their local markets.
And if your market has an average home price of $400,000… then you’ll need $400,000 in CASH to get started.
The Brrrr method IS contingent on you having cash (either from you or someone else).
Before we dive into HOW to find deals for your Brrrr method…
Let’s get into how to start if you don’t have the funds…
How to Start the Brrrr Method if You Don’t Have Enough Money
Diving into the real estate market can feel daunting, especially if you’re watching the dollar signs and thinking, “I can’t stretch that far.” But here’s a secret: you don’t need a Scrooge McDuck vault of money to start. You just need a bit of ingenuity and a dash of audacity. If you’re a little short on the green, consider these three savvy ways to get started:
– Partner Up: There’s strength in numbers. Find individuals with the cash but perhaps lacking the time or know-how. Together, you’ll bring a combination of capital and skill. Think of it as a real estate buddy system; while one dives deep into the deals, the other ensures there’s enough oxygen (read: cash) to keep things flowing.
– Expand Your Horizon: Sometimes, the grass is greener (and cheaper) on the other side. If your local market feels like a cash drain, consider venturing into a different or virtual market. Numerous virtual wholesalers are successfully casting their nets wider, capitalizing on areas with better returns. Digital tools and technology make it easier than ever to break into distant markets without leaving your couch.
– Hard Money Lending: This isn’t your average bank loan. Hard money lenders are individuals or groups offering short-term loans with real estate as collateral. While the interest rates are higher, they’re often more flexible and faster than traditional banks. For those keen on the Brrrr method but short on cash, this can be a viable jumpstart.
And there you go! A tight budget shouldn’t restrict your real estate ambitions. With a little out-of-the-box thinking and a sprinkle of hustle, the Brrrr method is within reach. So, which path will you carve?
Brrrr Method Walkthrough
Here’s a great video on a step-by-step walkthrough of the Brrrr method:
The Keys to Making the Brrrr Method Work
Let’s be real: If the Brrrr method were a dance, it would be a tango—passionate, deliberate, and not without its steps to master. And the heart of this dance lies in two fundamental moves: finding lucrative deals and mastering the art of refinancing.
1. Finding Good Deals
You have to be able to buy at or below retail value of the house as it sits. If you buy above, you can’t ADD VALUE.
You have to be able to ADD VALUE so that you can pull your money out on a cash-out refinance loan
2. The Ability to Refinance
Similiar to the above, you need to be able to perform a cash-out refi after you have tenants in place. And to do this, the house MUST appreciate in value from the time you bought it.
Hence, the “R” for rehab in the Brrrr method. The rehab adds value; and forces appreciation.
How to find Brrrr deals at a discount
This is the most important piece of it all..
If you can find deals at a discount you START your portfolio with equity, a buffer, and a cushion in case things go wrong.
Here are some reasons to buy Brrr deals at a discount:
1. Maximized Returns: Acquiring a property below its market value inherently boosts the potential return on investment (ROI). When you purchase for less, the margin between your buying price and the potential selling or rental price widens, paving the way for greater profits.
2. Mitigated Risk: A discounted purchase provides a cushion. In the event the property doesn’t appreciate as expected or unforeseen market fluctuations occur, that buffer can mean the difference between a loss and a break-even, or even a smaller profit.
3. Increased Equity: From the moment you acquire a discounted property, you automatically gain instant equity. This positions you advantageously should you decide to refinance or leverage the property for future investments.
4. Flexibility in Strategy: With a house purchased at a discount, an investor enjoys flexibility in their exit strategy. Whether opting to ‘flip’ the property for a quick sale or renting it out for sustained passive income, the reduced initial outlay offers more strategic options without the pressure of a high mortgage hanging over your head.
Let’s dive into the nitty gritty of discounted Brrrr properties…
Off-Market vs. On-Market
The realm of real estate deals can be neatly divided into two categories: off-market and on-market. Both present unique advantages, and depending on your approach, can offer properties ripe for the Brrrr method.
Let’s break these down.
– What Are They?: These are properties that aren’t publicly listed for sale. They’re like the hidden tracks of an album—gems that you wouldn’t know of unless you went digging.
– Pros: Because they’re not widely advertised, there’s less competition. This means potential for a better negotiation position and often a more favorable purchase price. HOWEVER… you must be proficient in marketing and negotiation.
– Finding Them: We’ll list of ways in the next section…
– What Are They? These are properties listed on the Multiple Listing Service (MLS) or other public platforms. They’re like the hit songs that everyone knows about and are available to the broad audience.
– Pros: Transparent pricing, detailed property information, and professional representation are common perks. While they might not always seem like bargains upfront, there are instances where properties have been on the market for a while, and sellers are motivated to negotiate. HOWEVER, you can’t get a better discount than off market deals.
– Finding Them: Working with a knowledgeable real estate agent can be invaluable. They can provide insights on neighborhoods, property history, and guide you to listings that might be priced higher but have negotiation potential.
Methods to Finding Brrrr Deals Off-Market
Finding a solid real estate deal off-market can be likened to a treasure hunt. It requires a bit of digging, strategy, and sometimes, tech assistance. When you’re going directly to sellers, you’re side-stepping the hustle and bustle of the MLS and potentially snatching up properties before they even get listed. Let’s delve into the various avenues you can explore:
– Buy from Wholesalers: This method is a tad different from the others. Here, you’re not going directly to sellers but to intermediaries (called wholesalers who’ll sell you a contract) who have already secured these deals. While you might pay a premium, it’s often worth the convenience and the ability to tap into deals you wouldn’t find elsewhere.
– Driving for Dollars (D4D): Imagine driving around neighborhoods, keeping an eye out for distressed properties, homes that look abandoned, or show signs of neglect. This is the essence of D4D. Tools like Deal Machine are perfect for this, turning your car trips into scouting opportunities.
– Direct Mail: This method is an oldie but a goodie. By using a reliable data provider like Propstream, you can generate lists of potential sellers and mail them an offer or an expression of interest. It’s proactive and can lead to remarkable results.
– Cold Calling: While it may sound daunting, picking up the phone and calling potential sellers can be incredibly fruitful. Before you dial, ensure you’ve got a solid list. Tools like REIsift can help refine your lead list, ensuring you’re dialing numbers that matter. And remember, skip tracing can be your best friend when trying to track down property owners.
– Leveraging Technology: The right software for investors can streamline your hunting process. RealEflow is a beginner-friendly CRM that helps manage and track potential deals, while Investor Carrot offers an optimized website builder tailored for investors, making it easier to attract and close deals.
In this pursuit, remember that consistency is key.
Off-market deals are out there, waiting for the savvy investor to uncover them. With the right tools and a dash of persistence, the Brrrr method becomes not just a strategy but a way of transforming your real estate aspirations into reality.