Step 1: Buy

Your equity position for BRRRR is its after repair value (ARV), minus the property’s current value, initial debt costs, and all other rehab and property ownership-related costs.

To calculate potential profit on your investment apply the 70% rule:

The 70% rule states investors shouldn’t pay more than 70% of the ARV minus the cost of repairs. 

 * Since the BRRRR method is most effective when you buy a discounted, neglected, or otherwise undervalued property, banks usually do not lend on these properties, our lenders finance distressed property daily, your best option is our DSCR loan.

Step 2: Rehab

Value-add properties require extensive repairs and renovations or modifications to improve the value. You need to make it structurally sound and aesthetically appealing. 

When deciding what to rehab on the property, evaluate what NEEDS to be replaced for function, safety, and future deferred maintenance. Select the finishes and upgrades based on what the comparable rental units may have.

Unless you’re rehabbing for luxury rentals, it’s not worth refinishing a basement or adding skylights and chandeliers.

You want to keep your material and labor costs down, especially on projects that add little value. Focus on high-value projects that’ll substantially increase your ARV, including: 

• Outdated bathrooms
• Unfinished kitchens
• Failing roofs
• Older systems like windows, furnaces, plumbing, electrical.
• Unkempt landscapes 
• Adding an extra bedroom or bathroom
• Finished rentable space.

Step 3: Rent

It’s important to know the market when investing in a rental property.

An understanding of what you’ll be able to rent the property for, vacancy rates, and how the neighborhood is trending will help you make informed decisions as you analyze prospective or current deals.

Research comparable homes in your neighborhood to figure out a fair rental price, then begin screening potential tenants. You can find your potential rent by similar comps in the area and the average price per rentable foot.

Tools are your friend! Start with a rental estimating calculator to get started.

After you find tenants and get the property rented, you get to enjoy the additional cash flow. Rental properties also give you invaluable experience as a real estate investor.

Once your tenants move in, you’re ready to get an appraisal.

Give your tenants plenty of notice, and request an interior appraisal. Make sure to send your appraiser a list of all upgrades you completed to increase the value. In addition, it’s beneficial to send the appraiser the comparables you used when underwriting the deal.

Step 4: Refinance

The question here is about a lenders seasoning period.

“Seasoning” is how long you must own property before the bank lends on the appraised value, rather than how much you’ve invested. Again, for the BRRRR method to work, you need to borrow on the appraised value. 

Luckily, some lenders will do this as soon as your property is rehabbed and rented.

Our DSCR loan allows investors to refinance right away.

The DSCR loan is based on the property's cash flow.

 * Most other banks usually have a waiting period of six or twelve months.

Step 5: Repeat

Use the money from your cash-out refinance as a down payment for another distressed home, and expand your real estate portfolio. Contact us to get started!