If you’re trying to get started in real estate, you absolutely need to know about the BRRRR method. Consider this the beginning of your education.
No, not that kind of brrr. BRRRR stands for Buy, Renovate, Rent, Refinance, Repeat.
It’s dead simple and is the best way to get started building your own portfolio of real estate assets.
How it Works
Buy. Get a cheap fixer-upper in a neighborhood you’re familiar with (so you know if it’s a decent deal or not).
Renovate. You want the fixes to be things like carpet, paint, or a kitchen or bathroom renovation—not the foundation, plumbing, persistent mold, or issues that will be long-term and a massive headache. Keep it simple.
Rent. Find a tenant. It’s cheaper if you’re living in this house yourself due to the easier loans you’ll have access to, especially as a first-time home buyer.
Refinance. You took out a loan to buy the house, and now it’s worth more. Theoretically, when you refinance, the house you’re refinancing is now worth more (maybe double) from your original purchase price upon reappraisal. Now you still have a loan on the house, but you can take out more money from the same property because it has a higher collateral.
Repeat. You have more money…go use it to buy another house. Do it all over again.
Assuming you’re buying similarly-priced houses each time, the gap in the financials is in the cost to renovate. If you spend $100k on a house, and then $50k on renovations, you’ve invested $150k. After renovations, the house is worth $200k. Great! You can take out a loan for another $50k on the house.
What Are the Risks?
Market movement. While this is a very short timeline move (your renovations should be light and doable, maybe a few months, definitely not more than a year), the market can still move down and bring your house value down with it. This doesn’t break your plan; you should still be well in the green. However, it will lower the amount of cash you can get out at the end when you refinance.
Time risk. If you’re sitting on loads of cash, you’ll still want to use loans because it will let you build and renovate faster. Eventually, you’ll still have to wait to accumulate more since you’re not making up the difference you put down right away. E.g. in the example above, you get back $50k from refinancing…but it still costs $100k to get another similar house. You have to wait to another $50k (from other income or your renter, which will take a few years) to start on your next house.
Location. If you’re going to be a landlord yourself, you’ll keep more of your money, but you’ll also be beholden to your tenants’ needs.
Get Started in Real Estate
In general, the housing market goes up, so if you’re willing to hold for 5 years (the 2008 dip took 4 years to revert), you’ll probably climb out of the hole. You’re extra safe if inflation continues to destroy the average American’s savings (yes, that kind of brrr). Real estate is one of the best ways to shield yourself.
If you have ~$500,000 saved, you could get started with a few houses. You may even make enough to create enough passive rental income to allow you to live off entirely (cheaply, and maybe not if you have a family).
If you want more on the BRRRR method, start read this primer from Rocket Mortgage. But honestly, just start Googling around. This is literally one of the oldest tricks in the money-making book.