To start with, what is the BRRRR strategy? BRRRR is a real estate investing acronym that stands for Buy, Rehab, Rent, Refinance and Repeat. It is one of the most powerful ways to invest in rental properties real estate while capturing significant equity and Return on Investment.
Pros :
High ROI. If this strategy is implemented properly, an investor can raise their ROI up to an infinity number, because an investor can acquire several rental properties with none of their funds and enjoy significant returns.
Equity Capture : One of the requirements for BRRRR to work successfully is a requirement to capture at the minimum 20-30% equity in a real estate investment. Continuously capturing an equity of 20-30% upon refinancing deals can lead to significant wealth creation.
New Systems in Home: Since this strategy includes Rehabbing, several systems in the home are replaced, which somewhat assures the investor of low operational costs over the next few years of ownership.
Top Grade Tenants: This goes hand in hand with the previous point. Since several items in the house will be replaced, it is often easier to rent the property and a landlord could be very discerning on selecting a tenant since there should be numerous applicants that want to live in a home with newer systems.
Cons:
Expensive Loan: Majority of the investors in this space use so sort of non-conventional loan to conduct the acquisition and rehabbing of the property. This loan is usually extremely expensive and can significantly cut into the profit margin of the investor. The expense of the loan can be exacerbated during the two long waiting periods. 1. Rehabilitation Period and 2. Seasoning Period.
Rehabilitation / Contingency Risk: There are usually a lot of unknown risks that pops its head during the rehabilitation period. Items such as unforeseen repairs or contractor issues.
Appraisal Risk: Ideally, this should be mitigated sooner during the due diligence, however, in order to make the BRRRR work, the property need to appraise around its projected After Repair Value.
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Victor Lofinmakin
“Obsessed with Service”
2016 Top 20 Under 40 Realtor
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Fairdale Realty
Gazette Mortgage
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