BRRRR Stands for Buy, Rehab, Rent, Refinance & Reinvest.

The BRRRR Investment Strategy is a hybrid Flip/Rental strategy where an investor Buys a fixer-upper property at a discount, Rehabs the property, Rents the property to a long-term tenant and Refinances the property to cash-out their equity in the deal to be re-invested in new deals to continually grow their portfolio.

The main difference between the BRRRR Investment Strategy and traditional buy-and-hold investing is the way the deal is financed.

A traditional buy-and-hold rental property is typically purchased with a long-term conventional mortgage for the purchase price of the property.

With traditional buy-and-hold investing your are generally required to invest a 20 to 25% down payment and then paying for all the repairs out of pocket.

The problem with traditional buy-and-hold investing is you are financing the property when the property value is at it's lowest, investing a large 20%+ down payment and then investing a bunch of cash out of pocket to renovate the property, so you end up with a large chunk of cash stuck in the deal.

Whereas, with the BRRRR strategy the investor is often times purchasing the property with cash or a short-term, interest-only bridge loan. Once the property has been renovated and rented out to a long-term tenant the investor refinances the the property to cash out their money invested in the deal.

Generally lenders will allow the investor to refinance the property at 70 to 75% of the After Repair Value. By refinancing the property when the property value is at it's highest the investor is able to get much more funding  to help cash-out their money invested in the deal.

With the less cash invested in the deal, the investor is able to reinvest the cash in other deals!

The process of 'BRRRR'-ing a property is broken down into three phases:

The first phase of a BRRRR deal involves buying a distressed fixer upper property at a discount and making smart renovations to increase the property value and add sweat equity to the deal.

You also want to buy the property at a big enough discount so that when you refinance the property you can cash-out all (or most) of your cash invested in the deal.

There's two factors you should consider when evaluating the purchase amount of a BRRRR:
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- How much should you pay for the property to achieve your desired sweat equity?
- How much should you pay in order to cash-out all funds in the deal?

When buying a BRRRR deal you will initially be analyzing the purchase of the property like you would a fix-and-flip deal. When analyzing a fix-and-flip, you want to calculate your Maximum Purchase Price that you should offer for the property based upon the amount of profit you want to make on the flip.

In a BRRRR, you want to buy the property at a big enough discount that you can build 'sweat equity' into the deal.

Maximum Purchase Price = After Repair Value - Repairs - Buying Costs - Holding Costs- Selling Costs - Financing Costs - Desired Sweat Equity

The secret to BRRRR strategy is that you need to buy the property at a big enough discount so when you refinance the property you cash-out all (or most) of your cash invested in the deal so you can reinvest your cash into other deals and build your portfolio.

Most lenders will only refinance up to 70% of the After Repair Value, so all of your project costs including the purchase, repairs and holding costs cannot exceed 70% of the After Repair Value if you want to cash out all of your capital invested in the deal.

Generally, the more distressed the property the easier it is to add value to the property. To force appreciation you need to make smart renovations that will provide safe, comfortable and clean living conditions for your tenants, but also add amenities that increase the property value.

As a landlord, you have a moral and legal duty to provide safe, comfortable, and clean living conditions for your tenants.

Housing codes are typically enacted by your local city or state jurisdiction and establish a minimum standard for the condition of your rental property. These standards typically include standards for your kitchens and bathroom facilities,  requirements for hot water, minimum levels of heat, prohibitions of rodents and insects infestations.

Most fixer-upper properties need major renovations to make the home safe and livable for your tenants. These types of repairs and improvements will ensure your tenants have a dry roof over their heads, comfortable indoor air quality,  clean water to drink & safe electrical systems.
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Roofing
If your roof is leaking you will need to repair or replace the roof to ensure your tenants have a dry roof over their head.
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Windows
Old single pane windows can be drafty and should be replaced with double-pane insulated windows to help decrease your tenants utility bills and provide a more comfortable living environment.
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Electrical
Old electrical systems like knob-and-tube wiring can be a fire hazard for tenants. Old wiring systems weren't built to support the electrical loads of modern electronics and appliances and can easily get overloaded, overheat and potentially cause a fire. If you have old electrical systems in your property you should modernize the electrical system to meet today's building codes.

Plumbing
Obviously if your property has leaky pipes those should be repaired
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HVAC
If the existing HVAC equipment is working properly you can probably keep it for now, but at some point you will want to replace the old, inefficient HVAC equipment with a modern high-efficiency HVAC unit that can help lower your tenants utility bills.

Abatement
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Pest Control
Nobody wants to live in a roach or rat infested home so if your property has pests you will want to get that taken care of while you are renovating the property and before your tenants move in.
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Tenant Building Code
Local jurisdictions have their own local building codes for rental properties that you may have to consider when renovating your property:
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- Fire Exits - You may have to install fire exits and access doors, fire exit signage,
- Fire Sprinklers - If your property is a multi-family property you may be required to retrofit the property with a fire sprinkler system.
- Fire Walls and Firestopping
- Smoke and Carbon Dioxide Detectors
- Deadbolts/Locks
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Addressing the housing code issues and building codes issues to make the property livable can certainly increase the property value, but certain amenities and features can really make your property stand out and more attractive to tenants and potential buyers when you resell the property down the road.
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Kitchen Renovations

Bathroom Renovations

Paint
One of the easiest and cheapest improvements to make is painting the interior of the property. Paint covers 5 of the 6 surfaces of a room (all 4 walls and the ceiling. You can dramatically refresh the interior of the property and by painting the walls and ceilings.

Flooring
Installing new  LVT flooring can will look great and provide a durable, long-lasting floor material that should perform for several years of tenant abuse.

Added Square Footage/Bedrooms or Bathrooms

Comps


Added
To increase the property value you will

Once you get the property renovated you will rent the property out to long-term tenants who will pay you monthly rental income to cover your cash flow.

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Once the property has been renovated, rented and stabilized the investor will refinance the property to cash-out the equity and cash invested in the deal and reinvest the cash into building their rental portfolio.

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