What’s the brrrr stategy? What does brrrr strategy mean? How do you use the brrrr strategy?
Brrrr stands for buy, rehab, rent, refinance, repeat. At it’s most basic form this mean you buy a property, fix it up, rent it out and then refinance – receiving most if not of all your money back out of the property to use again!
We decided to use the brrrr strategy before I even knew it was a thing! In 2016 we purchased a foreclosed 2 unit property in need of lots of renovations. There’s a 3 bedroom 1 bathroom home (soon to be a 4/2) and a 1 bedroom 1 bathroom apartment above the garage.
The more I think about it, we kind of combined the house hacking strategy with the brrrr strategy because we moved into the property! So it’s more like the HHbrrrr strategy (totally just made that up.)
It wasn’t our original plan to purchase something for us to live in but when we found our cute little bungalow with an additional apartment on the property we couldn’t pass it up. I just knew this was a fantastic long term investment for us.
How to Use the Brrrr Strategy
Step 1 – Buy a Property
I am so grateful to have stumbled upon a cute fixer upper that also had an apartment on the property, it was kind of perfect for us. And if you aren’t moving into the property you plan on using the brrrr strategy with you probably won’t be as picky about what you buy.
The brrrr strategy works on everything from a single family home, a duplex, ten-plex to a 300 unit building! It’s all about finding a property that you can add value to. The property could be in need of renovations or it could be mismanaged or the rents could be below market due to long term tenants. The point is, find a property that is in some sort of distress and make it worth more.
Obviously you need to find a way to pay for the property, so while searching make sure you have a plan on how to purchase because you might have to move quick. Investors move faster than your regular home buyer! This could be in the form of cash, a partner, a mortgage or some combination of them all!
Step 2 – Rehab the Property
After you buy the property you’ll need to rehab the property. In our case we bought a foreclosure where both units needed a ton of work. We started on the apartment first so we could start collecting rent ASAP. We renovated the entire thing from top to bottom, even adding laundry! We moved into the house and have been renovating ever since!
In some cases rehab the property could be mean cleaning up the problems like late paying tenants, bad management or expensive services.
Rehab could also simply mean increasing rents of below market units, separating utilities and passing on the costs to the tenants and figuring out ways to bring in more rental income. For example, in a duplex we purchased we decided to rent out the 2 car garage the old owner had been using for storage! We increased the yearly income of the property by $2400!
Step 3 – Rent the Property
In most brrrr strategy cases you’ll have to rent out units. Whether that be the ones you renovated, the tenants you had to evict or the ones who left due to increasing rents – you more than likely won’t be able to avoid this step!
An important part of the “rent” step of the brrrr strategy is that you rent to a qualified tenant who pays on time every time! When it comes time to refinance you don’t want any unexpected problems with income!
Step 4 – Refinance The property
The next step in the brrrr strategy is to refinance the property! You can refinance and obtain a mortgage or get a home equity line of credit, also known as a HELOC.
If you are living in the property it’s much easier to get a HELOC than if it’s a straight investment property. From our experience I also learned the lending institutions will let you borrow a larger percentage of the property’s value when you live in the property. For example we were able to borrow 80% of what our property is worth as opposed to 70% if we weren’t living in it.
The other thing I like about the HELOC is that it’s a line of credit where you use only what you need and can pay back and borrow from again and again (usually a ten year period.)
For example, when we refinanced our current 2 unit, we only took out what we needed to pay for a duplex – so we’re only paying interest on the money we’re using. With a mortgage refinance you get the entire amount and have to pay interest on the entire amount. You also can’t borrow any of the money you pay towards the mortgage in the future unless you refinance again.
Either way is a great way to get to step 5!
Step 5 – Repeat the Process
Here’s the fun part of the brrrr strategy. Do it all again!
That’s the beautiful thing about the brrrr strategy – it facilitates the ability to do the next investment.
When we refinanced the fixer upper we’re living in now, we purchased another duplex. (If I were to do it over again I would have liked to buy something a little bigger than another 2 unit… or another 2 unit I’d want to move into.) Eventually, we’ll have that place all fixed up and we’ll be able to refinance, hopefully getting our initial purchase costs and renovation costs back out.
So that’s the brrrr strategy in a nutshell!
Like I said above, the brrrr strategy is an excellent way to get started or continue in real estate investing. We’ve tried multiple strategies for investing in real estate and this is by far my favorite – especially when combined with house hacking.
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