BRRRR. It is cold in here – but I didn’t actually come here to talk about the weather at all.
If you want to get serious about your growth in real estate this year then you may want to consider going just a bit deeper than owning a single income unit, and start leveraging your assets to multiply your growth. Does this sound familiar? Enter: The BRRRR Strategy. Let’s break it down:
Step 1: Buy
- Acquire your first property (or start with the one you already have). Ideally, it is undervalued and has some room for cost-effective improvement (new flooring, paint, adding a bedroom or bathroom, etc.).
- Before buying your property, you need to reverse engineer the after repair value (ARV) numbers to ensure all is in alignment.
Step 2: Renovate
- You’ll have to invest some out-of-pocket capital the first time, but once you start repeating the formula the cash flow will be there to renovate and add value to the property.
Step 3: Rent
- When you set your rent, be sure that it aligns both with the local market as well as the renovations you’ve completed, but don’t price yourself out. You’ll want to aim for cash-flow positive at the end of all your costs of ownership.
- You can either do this yourself or have your property management team take care of it for you.
Step 4: Refinance
- This is probably the most powerful step in the process in terms of growth. Refinance your property at its new, post-renovation value to pull equity out in the form of cash – the cash that you will use to start your next project when you…
- Head back to step 1 and invest your newly liquid cash into a new property, while still collecting rental income on your first!
This strategy is powerful for many reasons, but one of the main ones is that you are able to generate income while holding properties long term. By refinancing (tax-free) and holding, you are able to capture the benefits of longer-term appreciation while having multiple assets to leverage. If you are hoping to invest in real estate this year then this strategy could be perfect for you.
Want to know more about the BRRRR strategy or real estate investing in general? Get in touch today!