Creating a Great Real Estate Portfolio Using “BRRRR” | Valor Lending Group
What is BRRRR?
The proven strategy of BRRRR is to build your real estate portfolio using these five steps: Buy, Rehab, Rent, Refinance and Repeat. This strategy is widely used and used successfully. That being said, first things first, an investor has to find the right independent mortgage broker. A mortgage broker gives the investor multiple tools on one belt instead of having to bounce from bank to bank because of the limited program availability of each institution. The independent mortgage broker is your one stop shop for all lending needs including BRRRR. As long as you find the right one.
B – Buy
The first step in the BRRRR process is, you guessed it, buying the property and you can buy a property with a few different options. You can pay all cash, you can use an investment property financing program, or you can utilize a hard money short term loan also known as a fix and flip loan.
- All Cash Purchase
Purchasing all cash would be an ideal situation for a couple reasons. First, you would be able to compete with cash buyers and cash buyers are the buyers that will typically win the bidding war because there are usually no contingencies and they can close very quickly. Second, you have the full equity to of the property to pull out as much as you need for the rehab and purchase of the next property you have your sights set on.
- Rental Property Loan
A typical scenario in which you would utilize an investment property program would be if you are purchasing a property that is move in ready or already has tenants occupying the property. This program is available with as little as 20% down payment. In addition, there are also full document financing available for the borrowers that can qualify using tax returns and additional income verification.
- Fix and Flip Loan
When you are flipping and you want to utilize financing, you will want to look into a fix and flip loan. It is a short term loan of 12 to 24 months that can include up to 100% of your rehab budget financed and as little as 10% as down payment on the purchase. Check out the video below for more information.
R – Rehab
The next step in the process is to rehab your newly purchased investment property. When rehabbing the property, you will want to be sure that the funds being put into the property will substantially increase the value of the property. The ARV or After Renovation Value should be at a minimum, 25% higher than the current lien on the property plus the funds put into the property
Ex. (Purchase: $100k + rehab cost $25k =$125k | ARV = $167K). This will ensure that you are receiving a valuable return on your investment in the form of equity .
R – Rent
Typically, a lender will require a renter in place to be able to refinance the property. A long term rental is most ideal but if you are looking to utilize AirBnB or VRBO, you are still in luck! Most lenders will not touch those types of rental income producing properties. The good thing is where banks and credit unions fail, a trusted broker such as Valor Lending Group, thrives. Rent the property out that will give your the greatest net cash flow.
R – Refinance
The rehab and the now established renter ensures that you have additional equity to tap as well as income being produced so that you can pull funds from the property and utilize said funds to go towards either: just a rate and term refinance to stabilize the property and start earning a return on your investment through net cash flow, or if you have additional equity available, you can utilize a cash out refinance product that will give you the ability to go out and purchase additional investments and do it all over again; which brings us to our final “R”.
R – Repeat
If you have correctly executed the BRRRR strategy, you would be able to continue the growth of your real estate portfolio by going right back out in search of your next big property (Buy, Rehab, Rent, Refinance and Repeat).
If you are looking for a team of professionals to guide you through the mortgage loan process, look no further!
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