3 Reasons You Should Warm Up to BRRRR

There’s nothing new about the BRRRR strategy of real estate investing other than the catchy acronym that helps explain the method, which was the brainchild of Brandon Turner at BiggerPockets. Here’s what BRRRR stands for:

  • Buy
  • Repair (some say Rehab or Renovate)
  • Rent
  • Refinance
  • Repeat

Here’s a nutshell version of how it works.

  1. You buy an as-is rental property (one that needs some work).
  2. You then repair, rehab, or renovate the property to get it rental ready.
  3. You rent it out and collect rental income.
  4. You then do a cash-out refinance on your loan using the equity you’ve gained from your renovations and/or house appreciation.
  5. You repeat the process.

Two people renovating the interior of a home.

Image Source: Getty Images.

It’s true that the buy and repair aspects of BRRRR are higher this year; the price of homes, like most everything else, has skyrocketed. From May 2020 to May 2021, homes were up a record 13.2%. And by the end of 2021, experts at Zillow predict homes will have risen 19.5% higher than they were at the end of 2020.

Home improvements are more expensive as well. From 2019 to 2020, the cost of an addition to a home rose 49%, adding a closet cost homeowners 38% more, and new cabinetry became 30% more expensive. So even with fixer-uppers, you’ll probably need to pay more, both to acquire and to renovate the home.

With that said, it’s still a good time to buy rental property. Read on to find out how and why you can still make money today using the BRRRR strategy.

1. Rents are increasing

Nationally, rents have risen 9.3% from August 2020 to August 2021. This is up from a 2.2% increase from August 2019 to August 2020. This rent increase is true for all the major metros. For trivia buffs: Rents went up the most in Miami, at a whopping 21% year over year. This was followed by Phoenix, with a 19% rent increase, and Las Vegas, with a 15% increase. So with the increased cost of entry to buy and repair houses comes an increase in potential income. As long as your numbers work, even though you’re paying more, you can still make money investing in single-family rentals (SFRs).

2. The renter pool is increasing/high occupancy rates

Consumers have been demanding more space in their residences since COVID-19, both for working at home and for spending more time at home in general. Many of these potential homebuyers are priced out of the market and are renting single-family homes instead. This means you should have no trouble renting out your investment. Of course, you should still get your property in rent-ready condition, market it well with attractive photos and video, and practice tenant screening. If so, you should be able to fetch a premium price for your product.

3. Home appreciation is still expected

The record level of home appreciation in 2021 is expected to continue throughout 2022, although maybe not quite as much. But since demand is expected to remain high, interest rates low, and supply not yet caught up with demand, it seems to be a pretty good bet to predict a house bought today will be worth more at this time next year. With home appreciation comes equity, and with equity can come your refi strategy and next investment opportunity.

BRRRR works just as well now as it always has, despite the increase in housing and renovation costs. Just remember to run your numbers on any potential investment, such as cash flow and cap rate. If the numbers work and you have the cash or the financing, you might want to go for it.

10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 6/15/21

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Next Post

Nexa Equity Announces Majority Growth Investment in Leap, a Leading Sales Enablement Platform for Home Contractors

Investment expected to further accelerate Leap’s growth by expanding the company’s feature set through development and strategic acquisitions, enabling Leap to serve additional home improvement verticals SAN FRANCISCO, Dec. 14, 2021 /PRNewswire/ — Nexa Equity LLC, a private equity firm focused on scaling lower middle market software and fintech businesses, […]
Nexa Equity Announces Majority Growth Investment in Leap, a Leading Sales Enablement Platform for Home Contractors