What is BRRR in Property Investment?

Property investment is very volatile, as there’s no predicting what’s going to happen in the market with there being so many things that can change in an instant. One minute a property can be worth a lot of money and the next, it can suddenly drop. However, there is a new solution to this.

BRRR is often described as the infinite return strategy. While most traditional investors buy a property and leave their cash stuck in the brick and mortar, the BRRR method is designed to be a cycling system. By focusing on distressed properties and forced appreciation, you can recover your initial capital and move it from one project to the next.

This guide will take a closer look at BRRR, giving you better insight into how you can successfully make safe yet profitable investments. Continue reading for more.

The Stages of BRRR

1. Buy

The goal here isn’t to buy a turnkey home. You want one that needs work or is undervalued, so you can make bigger profits on it when you sell in the future. The magic happens when you buy a property at a price where the purchase price plus the renovation costs are significantly lower than the eventual market value.

1. Renovate

You need to make changes to the property that you know are going to boost its curb appeal and make it more attractive for investors. There are certain things you can do that are proven to increase your property value, such as:

• High-ROI upgrades: New kitchens, modern bathrooms or adding an extra bedroom.
• Safety first: Updating electrics or heating systems to meet modern standards.

1. Rent

Lenders generally won't let you refinance a vacant property at its full value. By placing a tenant, you prove the property is an income-generating asset. The rental income should cover the new mortgage payments, maintenance, and still provide a monthly profit.

1. Refinance

Once the property is renovated and tenanted, you get a new appraisal. If you’ve done it right, the value has increased enough that you can take out a new mortgage that is large enough to pay off your original purchase loan and recoup your initial renovation costs.

During the refinance stage, you now have your original capital sitting in your bank account again. You can then move on to the next property and start the process over.

Risks to Keep in Mind

BRRRR requires precision, as it’s not an infinite money glitch without you putting in the hard work to make it a success. If you get it wrong, you can find yourself stuck in a deal. Watch out for these risks:

• Appraisal Risk: If the bank decides the house is worth less than you expected, you won't be able to pull all your money out.
• Renovation Overruns: Unexpected structural issues can eat your profit margins.
• Time: Most lenders require you to own a property for at least 6 months before they allow a refinance based on the "new" value.

This strategy is best for investors who have access to a reliable team of contractors and enough initial capital to fund the first project.