We always talk about “knowing your numbers.” But when it comes to BRRRR, what exactly do we mean? Here’s an example of an ideal BRRRR property using the 75% rule.
The 75% Rule
The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.
Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.
The reason for the 75% rule is because that’s the number banks willrate-and-termrefinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.
It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.
Example Breakdown of a BRRRR Deal
After repair value (ARV) is the number the house should sell for once it’s all fixed up and on the market. This number is often dictated by what similar properties in the area are going for.
To get the best long-term rates, you refinance with your second, permanent loan. In order for it to cover everything (i.e., you don’t have to put any money down), all your costs must be 75% or less of the ARV.
Purchase Price + Rehab + Carry Costs + Loan Closing Costs = 75% of ARV
Let’s say, for example, other properties in the area are selling for $200,000, so that’s your ARV. You want to spend 75% less than that, so we’ll do:
$200,000 X .75 = $150,000
When the ARV is $200,000,allcosts of the job should be $150,000 or less. This includes the closing price, carry costs, rehab costs, and any loan costs.
Read the full article here.
Watch the video here:
FAQs
Here's a simplified version of the BRRRR method (we're not including fees or taxes in this example): Buy a $300,000 house ($60,000 down payment; $240,000 loan) Spend $60,000 Rehabbing the property ($60,000 down payment + $60,000 rehab costs = $120,000 total investment) Rent the property for $1,500 per month.
What is the Brrr formula? ›
What Is the BRRRR Method? BRRRR stands for buy, rehab, rent, refinance, repeat.
What is the 75% rule in BRRRR? ›
It is possible to get a bank loan, but no bank will lend more than 75% (or 80%, if you are lucky) of the cost you have into the property upon purchase. This means that if you buy the property correctly (for 70% of its market value), you will only have what amounts to a 52.5% LTV loan (75% loan X 70% market value).
How to make money using the BRRRR method? ›
The BRRRR method is a form of real estate investment that involves buying distressed properties, remodeling them and renting them out, then refinancing and starting again with a new property. The idea is for it become an ongoing cycle that allows you to repeat the process over and over, making money each time.
What is the 1 rule in BRRRR? ›
What is the 1% Rule in BRRRR? The 1% rule in BRRRR investing is a quick method to determine how much rent to charge as a landlord. If you follow the 1% rule, the rent you charge your potential tenants should equal at least 1% of what you paid for the house, including renovation costs, repairs, and other improvements.
What is the 70% rule for BRRRR? ›
70% rule. This general rule of thumb is popular among BRRRR investors and house flippers. Simply put, you shouldn't pay more than 70% of the estimated after-repair value. The 30% financial cushion helps offset repair costs while giving you sufficient equity to qualify for a refinance.
What is the 2-5-7 strategy? ›
What is the 2-5-7 Investment Formula? Andrew's investment strategy adheres to what he calls the “2-5-7” formula. In 2 years, the goal is to accumulate a minimum of 5 properties and using the cash flow pay them off in 7 years.
How do you learn the BRRRR method? ›
How Does The BRRRR Method Work?
- Buy The Property. You should purchase a distressed property. ...
- Rehab The Property. A distressed property will likely require extensive work to become move-in ready. ...
- Rent Out The Property. ...
- Refinance The Property. ...
- Repeat The Process.
Our mission is to help everyone in America buy their first 5 properties in the next 2 years, and have them paid off in 7 years. This is the 2-5-7 Cashflow For Life philosophy.
What is the golden rule in real estate? ›
The golden rule
“Buy a property with 20% down. [That] has always been my formula because they used to do with 10%, but it's not possible anymore. I repeated that formula again and again and again, and then making sure the tenant has paid my mortgage. It's pretty easy that way.”
Flipping requires more hands-on work with quicker cash returns, while BRRRR takes longer but offers long-term returns. You'll want to make sure that whichever path you choose aligns with both your short-term goals as well as your long-term plans.
What is the 1 rule in real estate? ›
The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.
What is an example of a Brrr strategy? ›
Example of BRRRR
Let's say that you're an investor who purchased a foreclosed property for $100,000, but you're able to refinance it for $130,000. The $30,000 difference can be used to cover new appliances in the kitchen and some landscaping to boost curb appeal. In the meantime, renters sign a lease and move in.
How do I start my first BRRRR? ›
Introduction to the BRRRR Method
- Buy – First comes finding a property in need of repair.
- Rehab – Then comes fixing the property.
- Rent – Once rehabbed, rent the property out to a tenant.
- Refinance – Take out a long-term loan and recoup your cash investment.
- Repeat - Doing it all over again with the same cash you started with.
How to use the BRRRR Method?
- Step 1: Buy. Buy a property that needs some work done on it. ...
- Step 2: Rehab. Renovate the property and make sure that it meets all of the requirements for rental properties. ...
- Step 3: Rent. The third step is to rent it out as soon as possible after the purchase. ...
- Step 4: Refinance. ...
- Step 5: Repeat.
Generally it is recommended to have between $75,000 and $100,000 budgeted for investing in the BRRRR Method. However, if financing the purchase and renovations with a hard money loan from Easy Street Capital, you can get started with less cash, as we will finance up to 90% LTC (Loan-To-Cost) of the purchase and rehab.
