BRRRR:

Buy, Renovate, Rent, Refinance, REpeat

This strategy has grown in popularity in recent years because it is an approach focused on growing a portfolio by leveraging gains from a property into the next property. 

The  strategy can be summarized as follows: 

  1. Buy an undervalued property
  2. Renovate it for high market value and income generation
  3. Rent out the property at the highest market rate
  4. Refinance: refinance the property at a new appraised value and take out your original investment + profits 
  5. Repeat: use the proceeds from this investment to purchase the next property

Here is a brief overview of a BRRR investing strategy:

  

  

 

 

 

 

 

Goals

  • Both short term and long term return on investment.
  • Purchase a property that is under the local market value and invest in renovating it to increase its appraised value and generate income
  • Attain sufficient appreciated value to recover the original investment + expenses and provide a profit.

Tactics 

  • Search MLS for stale listings, price reductions, terminated listings and properties with comments like ‘As-Is’ or ‘for Investors, renovators’
  • Search for off-market deals through real estate agents and wholesalers.
  • Use local comparables to assess how much market uplift potential there is.
  • Build a team of contractors and trades you trust and use them consistently. 
  • Take on renovations that are within your scope of risk and expertise
  • Upgrade to the local market expectations (i.e. don’t build the most expensive house on the block).

Exit Strategy

  • No exit – long term strategy
  • Move Quickly to maximize profit – renovate and tenant the property with new tenants at market rates

Critical Success Factors

  • Protect profit: Don’t overpay on the purchase.  
  • Know your numbers: keep tight controls on budget and schedule. 
  • Renovate to local standards, expectations, and values. 
  • Good team and network:
    • Under-market properties are harder to find, especially on MLS.
    • Mortgage brokers with experience in portfolio building and financing
  • Knowledge of zoning laws that guide what is possible with the property.
  • Local market knowledge of property values, rental rates, and tenant demographics.

Suitable Properties

  • Residential property types: condos, detached and semi-detached houses, duplexes, triplexes, multiplexes. 
  • Commercial, Multi-Use

Other Considerations

  • When competition for trades is high, keep your team busy by securing their next project without a gap.
  • Financing: there are many financial tools you can use to fund the renovation.
  • Capital expenses: as this is a long-term investment, it would be wise to set aside (allocate) a portion of monthly funds to pay for major improvements such as a new roof, new appliances, HVAC, etc. 
  • Taxes: taxes on rental income 
  • Understand your rights and responsibilities as a landlord. In Ontario this falls under the Residential Tenancy Act.

 

Recommended for:

  • Active investors who want to build a portfolio.
  • Active investors who want to involve themselves in the renovation.
  • Passive financial investors who want to loan funds for renovation and uplift projects at a good interest rate.

 

Is a BRRRR strategy for you? 

Contact me to have a conversation about how to get started in real estate investing. 

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