The BRRRR method is a proven strategy to help you diversify your rental property portfolio within the Phoenix area; here’s what you should know.
As an investor in rental properties – whether you have one or an entire portfolio – you know how important it is to finds strategies and methods that work well for you. If you stood in a room of 100 investors, there is a good chance that each individual would have a different strategy or method when it comes to finding the best properties and the soundest investments.
The critical thing to remember is that the goal of one investor may differ from another. And, truth be told, what one may think is a great strategy may be flawed.
If you truly want to diversify your rental property portfolio with an established investment strategy that has been proven to work, then you need to consider the BRRRR method.
The BRRRR Method: An Overview
Investing in rental property means that you need to find something valuable and create a lot of cash flow. After all, that is the end goal here, right? Thinking of traditional investments, most rental properties are purchased using financing. You apply for a loan through your bank, give a down payment (often at least 20%), fix up the property, and rent it out. It works, yes. But is it efficient? Not so much.
Using the BRRRR method, you cut out the financing and down payment. There is no need to waste time-saving up money on the side so you can make things look good for the bank. Instead, you find yourself moving the process quickly, rehabbing, renting, and refinancing so you can do it all again. It is, honestly, one of the best ways to keep a well-stocked, diversified portfolio – while maintaining a healthy cash flow.
The acronym BRRRR, stands for Buy, Rehab, Rent, Refinance, Repeat. Let’s take a look at each one of these steps.
You want to buy property as an investment because you are looking to make money. Before you can even think of buying, though, you have to find the property that works for you – meaning type, location, price range, and so on. Once you find what you are looking for, you could look to traditional bank financing, but you must know it is not your only choice.
Consider looking at other options for buying your new rental property:
- Cash: Not everyone has a stack of cash in the bank, but if you do, you may want to consider moving forward with a cash investment in the rental property.
- Private funding: If you know someone who wants to financially back your purchase or you have a friend or family who can loan you the money, this could be an option for you.
- A home equity loan: Borrow against a property you already have.
- Hard money loan: For those who don’t have the best credit or financial history but still want to diversify your portfolio in hopes of turning your financial situation around, hard money loans using tangible collateral could be an option.
- Cash-out refinance: Again, if you currently own a property, you can always refinance and use the cash to put it towards your new investment.
As we stated, there are many different options for buying new rental properties, so you can find what works for you.
The idea behind the BRRRR method of property investment is to look for a promising rental that needs some work – and then purchase it below market value. This allows you to go forward and renovate it and, in turn, increase its value.
Rehabs will vary in cost but can be upwards of $40,000.00 on average. You may encounter simple renovations, such as a leak, new carpet, or new coats of paint. Or you may find yourself having to do some significant renovations with the roof, appliances, remodeling of the kitchen or bathroom, and so on. This is when costs can increase significantly.
Remember that you do not always have to do major repairs to see a great increase in value. Sometimes, just small changes, such as bringing curb appeal to the property, can increase its value to your portfolio.
If you want a sound investment, you cannot skimp when it comes to finding tenants. You need to rent your property to suitable tenants so that they not only care for your property but pay monthly rent regularly and on time.
The tenant screening process requires a bit of time and skill. Sometimes leaving this to the experts may prove to be a wise choice. Property managers have a deep understanding of the local market and know the proper way to screen tenants. This means they also know how to find high-quality tenants while avoiding scammers.
Think about it this way – you are investing in a rental to gain quality tenants – and keep them happy – so you can maintain an income from this property. You need to place value in the entire process – and a property manager can help.
The next step in the BRRRR method is to refinance the rental property. Timing is crucial with this step as you want to wait approximately 6 to 12 months after you gain renters before you reach out to the lender. Be sure you have a clear understanding of your guidelines – and have a backup plan – before you rely too heavily on the cash from this refinance.
If you are like most investors, you are always looking for the next property. With the money you receive from the refinance we just talked about above, you can purchase your next property – and repeat the whole process.
That’s how you diversify that rental portfolio of yours!
Having professionals by your side always makes the process run a bit more smoothly. While you network with lenders, real estate agents, and other investors, don’t forget to find a property management team, too.
At Real Property Management Evolve, our seasoned team works to keep the Rent portion of the BRRRR method under control for all of your rental properties. That’s what makes us the best property management company in the greater Phoenix area.