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:
- Repair (some say Rehab or Renovate)
Here’s a nutshell version of how it works.
- You buy an as-is rental property (one that needs some work).
- You then repair, rehab, or renovate the property to get it rental ready.
- You rent it out and collect rental income.
- You then do a cash-out refinance on your loan using the equity you’ve gained from your renovations and/or house appreciation.
- You repeat the process.
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 …….