One of the biggest challenges small investors face when trying to build an investment property portfolio is how to fund the next purchase. After all, you cannot buy a property without money, and in today’s market with our pricing, that can be difficult. This is where the BRRR strategy comes into effect, and I have used this myself - yes, even in today’s real estate climate.
BRRR = Buy, Renovate, Rent, Refinance, Repeat.
This sounds simple, but it rarely is.
This really is all about capital efficiency.
Investors have to be careful with their purchase. Careful consideration is needed to ensure a property can be renovated at a reasonable cost, while calculating what potential rents could be and what a property will re-appraise for once renovated and rented.
If done properly, the capital recovered by refinancing may be available to be used for another property.
This is how people grow their portfolio of properties with “limited” capital (it’s not cheap to get started, so “limited” is in the eye of the beholder here).
The Money Matters
The price you pay is important. So is the amount you spend renovating, along with rents and appraisal numbers. Every dollar is important here.
None of this is independent of the other. Spend a little too much when buying? Overspend on renovations? Don’t get top dollar when renting?
These all can affect your capital available when refinancing.
You probably wont get every dollar back
You need to consider how much capital will be recovered. You should be able to pull 80% of the revised appraisal value out of the property. Maybe you won’t pull that entire 80%. It might make more sense to keep more invested in a property than pull everything. The property should still be a good investment after the refinance.
What happens if your appraisal falls short of what you hoped? What if there are unexpected renovation costs? These are questions you should understand.
Thinking of taking the first step to buying an income property?
Talk to us today. We have first-hand experience with this investment strategy and others, and a long history of helping clients expand their portfolios.
