Have you ever wondered how real estate investors are able to generate passive income so quickly?

They use a real estate investing strategy to help them find the best deals and buy properties. Once they’re generating a steady income, they pull out their initial investment to reinvest it. The BRRR method is one of the top strategies to quickly build wealth with real estate investing.

We talked to Josh Janus, who first started investing in real estate when he went to college. Today, he makes more than $50K monthly with real estate investing and he’s only 22 years old.

We’ll introduce you to the BRRRR method and tell you more about Josh’s experience. We’ll also share the pros and cons of the BRRR method and explain how to use this real estate strategy.

You can either keep reading or click on any of the links below to jump straight to the section that interests you:

What is the BRRRR method in real estate?

The BRRRR method is a real estate investment strategy. The acronym stands for buy, rehab, rent, refinance, and repeat.

The BRRRR strategy follows this general process:

1. Identify distressed properties.
2. Renovate the properties until they’re comparable to the rest of the neighborhood.
3. Renting the property out.
4. Refinance to pull the access equity out of the property.
5. Buy another property.

The BRRRR method allows you to quickly build a large portfolio of rental properties. It’s similar to house flipping, but you earn ongoing rental income instead of selling the property after you renovate it.

As you continue to buy, renovate, rent out, and refinance the properties, you’ll earn a steady stream of cash. Plus, you’ll increase your net worth as the real estate appreciates in value.

BRRRR Method Case Study: Josh Janus

When Josh Janus was in high school, he decided that he wanted to retire by the time he was 30. He started saving his money and bought his first duplex with $10,000 when he went to college. He lived in one side and rented out the other.

Josh also became a real estate agent. Now, at 22, he has sold more than $17 million in property and owns 10 rental properties. He explained how he uses the BRRRR method to buy and sell houses:

Learn the strategies that Josh uses to build his real estate business in our interview below:

Be the First to Know When We Release Our Course

We’re working with Josh to create a real estate investing course to help you learn how to buy a house with no money. We’ll be sharing his full strategy through the UpFlip Academy.

Pros and Cons of the BRRRR Method

Every strategy has benefits and risks associated with it. Let’s look at the pros and cons of the BRRRR method.

Benefits of Using BRRR

There are numerous benefits of using the BRRR real estate method. These are some of the benefits in the order you’ll experience them:

• Lower initial investment: The down payment is normally lower for a fixer-upper than a fully renovated home.
• Equity access: You can access the equity created by the renovations to purchase more properties.
• High ROI: The BRRRR method generates profits quickly and then earns cash flow from the rental income.
• Passive income: Once the home is remodeled and you place a renter in it, the BRRRR strategy generates a steady flow of income.
• Appreciation: Given you aren’t selling the existing property immediately, it can gain market value if there isn’t a downturn. If there is, you’ve probably already recouped your initial investment.

Note that you’ll see many of the same benefits with house flipping while removing some of the risks.

Risks of BRRRR

Despite all the benefits, there are also some risks with the BRRR real estate method:

• A complex process: Buying properties is complex on its own. Repairing and renting them to high-quality tenants before refinancing adds even more financial and regulatory challenges.
• Vacancy periods: You have to pay for vacancies during the renovation process and when tenants move out. This can harm cash flow.
• Time: Remodeling and placing tenants take time.
• Renovation costs: Unexpected costs can cause renovations to go over budget.
• Appraised value: If the post-repair value isn’t as high as you expected, you might not make as much on a cash-out refinance.
• Market fluctuations: Rental rates and property values are constantly changing.

Many of these challenges can be reduced if you buy a new property with multiple units under a single mortgage payment. You can live in the unit you’re repairing while renting out the others. Then move to another one after you complete the first.

How to Use the BRRRR Method

Beginners normally start with one property. As they become more comfortable with the process, they increase the number of deals they do at once. Josh told us:

Let’s look at each step in the process.

Step #1. Buy a Distressed Property

First, you’ll need to find distressed homes in the real estate market. Josh told us:

Using his strategy requires becoming a real estate agent. If you don’t want to become a real estate agent yourself, you can always work with one to help you identify distressed properties.

Put together a list of properties that have been on the market a long time. Get the owners’ names and contact information.

Then you’ll want to start cold calling them all. Josh explained that calling is the best way when you’re seeking out a real estate investment property. It helps you build a relationship that emails or mailers don’t.

You’ll want to know the value of updated homes in the area and the rental income they can generate. Make sure to carefully research the estimated renovation costs to establish how much you’re willing to pay for a property. You shouldn’t pay more than 70% of the price for comparable homes since you’ll also need to factor in the cost of remodeling.

You can use the formula below to figure out how much you can afford to spend on real estate:

Maximum budget = (comparable homes × 70%) – (remodeling costs)

For instance, when comparable homes are $450K and the remodeling costs are $30K, you don’t want to spend more than $285K.

You’ll also want to make sure any monthly payment is less than the amount you can rent it for. Don’t forget to include the costs of the homeowners association and insurance in your monthly costs.

One of the reasons that real estate investors love duplexes and quadplexes is because they can be treated like a primary residence. At the same time, you’ll also have other properties generating revenue while you live in and repair another unit.

Step #2. Rehabilitate the Property

This step is where the BRRRR real estate strategy creates value. You’ll want to take the new property you bought and bring it in line with other properties in the area.

You might need to increase the curb appeal, make the property livable, or update outdated designs before you can bring in potential tenants.

During this time, you’ll need to pay the new mortgage and do the home improvement.

If you don’t know how to do the repairs yourself, pay contractors to do it. Josh warned:

There are numerous costs associated with a rehabbed property. We’d suggest reading the following blogs before you start buying BRRRR properties:

• Renovation costs: Zillow has a list of all the rehab costs to consider.
• Process: The remodeling process is detailed and complex. Read this blog by BiggerPockets to learn more.

Josh told us:

Once you’ve done all the repairs, you need to get the home inspected to establish the new property value. Then you’ll want to start renting the property.

Step #3. Get Rental Income on the Property

The next step is to enter the rental market to get revenue for the property. You’ll either need to find long-term rentals or use a platform like Airbnb.

Long-term rentals are lower but provide more stable income with equal monthly rent payments. Meanwhile, Airbnb typically makes more monthly revenue but has higher costs. Keep in mind that you’ll also need to save more money for future repairs.

For short-term rentals, you’ll run a background screen and credit report, sign a lease, collect a deposit, and set up monthly payments. Many investors hire a property manager to assist them with this, but you can do it on your own if you want.

Step #4. Get a Cash-Out Refinance

You’ve now reached the refinancing stage. Some banks only offer refinancing on the debt.

Others offer cash-out refinancing based on the after-repair value (ARV) of the property. You may also want to consider a home equity line of credit.

The first question you need to ask money lenders is, “Do you offer cash-out refinancing?” Then you’ll need to understand the terms.

Most banks require a waiting period of six months to a year before you can actually apply for a refinance. This requirement pushes many BRRRR investors to other loans, which typically have a higher interest rate.

In addition to banks, there are hard-money lenders. These private lenders offer loans to people who don’t qualify for traditional bank lending requirements.

You might also search for a BRRRR method lender. These lenders specifically focus on offering debt-service cover ratio (DSCR) loans.

DSCR loans are typically capped at 80% of the value of the home. They also require a 1:1 cash flow with liabilities and a good credit score. Josh told us:

We suggest applying for business funding with BorrowNation.

Step #5. Repeat to Grow Your Real Estate Portfolio

You’ll want to repeat the process until you’ve built a sizable portfolio. As you build long-term appreciation and wealth, you’ll be able to engage in BRRRR investing more frequently.

One of the tricks to wealth building is taking advantage of leverage. This involves increasing your profits by refinancing when the interest rate goes down. A 1% reduction in the interest rate will normally save $65 per month for every $100,000 borrowed.

Freddie Mac and Frannie Mae have restrictions on the number of mortgages you can have for investment properties (10) using a conventional loan. After that, you’ll have to go strictly with hard-money lenders to find a way to refinance and pay off multiple properties.

BRRR FAQ

How does the BRRRR method work?

The BRRRR method works by looking for properties that you can buy and remodel for less than the market value of comparable properties in the area. Then you rehabilitate the property to bring it up to market value and find renters. Lastly, you refinance the loan to take out the excess equity and repeat the process.

Is the BRRRR method legit?

Yes! Josh Janus uses the BRRR method and has already built a portfolio of over $1.5M with 10 properties he owns and over $17 million in real estate sales.

Based on Reddit forums, refinancing is only available for up to 75% of the home value. You need to find properties that you can buy for less than 70% of the home value minus the renovation costs.

What does the BRRRR method stand for?

The BRRRR stands for buy, rehab, rent, refinance, and repeat.

Who created the BRRRR method?

The real estate investment strategy called the BRRRR method is most commonly attributed to BiggerPockets podcast host Brandon Turner. However, some people trace it back to Robert Kiyosaki’s book Rich Dad, Poor Dad.

Want to know how Brandon Turner came up with the BRRRR method? Check out the video below:

Closing

When you buy your first property, be careful. Most people make mistakes in calculating the total cost because they assume the purchase price is an all-in price. It’s not, and those extra costs end up raising your monthly payments.

Many people also underestimate their renovation budgets and overestimate the value after remodeling. You could end up in a position where you have to wait a substantial amount of time before you buy your second property.

Make it a point to work with investor-friendly agents to get the best results.