BRRRR Calculator

BRRRR Calculator to calculate the costs and cash flow for buy, repair, rent, refinance, and repeat in real estate investments.

What is the BRRRR method?

BRRRR stands for buy, repair, rent, refinance, and repeat, which is a real estate investment strategy known as the BRRRR method. It is a popular and common strategy that real estate investors use to buy properties to create passive income through rental income.

How does the BRRRR method work?

The way the BRRRR method works is to buy properties, rehabilitate them, and rent them out to tenants. The rental income allows the investor to cover the monthly mortgage payments, and build equity in their houses over time. Once the investors have sizable equity in their houses, they can then get a home equity loan or cash-out refinance to buy a second property using the rental property as collateral. Then the investors repeat the whole process again as they did with the first house. The BRRRR is one way real estate investors increase properties under their names and grow their net worth.

What is a BRRRR property?

The best property to buy utilizing BRRRR are houses that are undervalued or houses that are in bad conditions, the investor can then add value by renovating the house and hence increase the market value of the house. Oftentimes, houses that needed a lot of fixes scare away buyers and therefore are much less competitive than houses that are in move-in conditions. These houses usually offer deep discounts compared to the market prices of similar houses in the same neighborhood. This allows real estate investors who are in the business of fixing houses to buy houses for much cheaper prices.

How to find BRRRR properties?

The best way to find disastrous houses for sale is to find them off the market, which means these properties are not listed on MLS. Once the property is on the market, there will be other real estate investors competing for the same house and bidding up the price, and it gets costly. There are many ways an investor can find houses to buy before they are on the market. They can advertise in the newspaper to buy houses, create direct mail campaigns to targeted areas, through real estate wholesalers, and visit real estate auctions for foreclosures. These are the places where an investor can find bargain houses that are less competitive and more affordable, especially in a state where the real estate market is hot.

How to get a BRRRR loan?

An investor can consider different types of finances when getting a loan for BRRRR.

• Conventional Loan - the traditional 15-year or 30-year mortgage. It could be a fixed interest rate or an adjustable-rate mortgage (ARM). The bank is the best place to apply for this type of standard loan.
• Hard Money Loan - also known as bridge loans. These are short-term loans used mainly for fixing and flipping houses. A hard money loan is a secured loan that uses your property as collateral. The approval process is shorter than conventional mortgages, but it comes with a higher interest rate.
• Private Loan - finance the property with other people's money or private loans. These private loans usually come with a higher interest rate than the banks and may have other strict conditions and terms.

Investors who have an existing home with at least 20% equity in their houses, may consider the following 3 types of loans.

• Home Equity Loan - use the home equity loan to finance the purchase of the new property using his existing house as collateral.
• Cash Out Refinance - refinancing the existing mortgage into a new larger loan than the outstanding balance. Use the new loan to pay off the existing mortgage and use the remaining as a down payment for a BRRRR property.
• Home Equity Line - similar to a home equity loan that allows investors to borrow money against their home. The difference is that it is being used as a credit card. Once the investor is approved for a line of credit, they can borrow money, pay it back, and borrow some more. Investors are not required to use up all the money, the interest is charged only on the money that they use.

Using an existing home as collateral is a risky way to finance a property for the BRRRR method as investors will lose their homes if they fail to make payments. Beginning real estate investors should proceed with extra caution if they do choose these options. They should carefully analyze their financial background and make sure that they can repay the loans.

BRRRR Method Example

Let's say an investor finds a house that he wants to purchase using the BRRRR strategy. The house costs $500,000, and the investor puts down $100,000 which is a 20% down payment. A 20% down payment is needed to avoid paying for private mortgage insurance or PMI. This means he is applying for a mortgage of $400,000. He estimates that the cost of rehabbing is about $50,000. Let's review our numbers. House Price: $500,000 Down Payment: $100,000 Mortgage: $400,000 Rehab Costs: $50,000 After the renovations are completed, the investor rents out the house. Let's say the investor rents out the entire house for $4,500 a month which would be enough to cover the monthly mortgage payments. After 1 or 2 years or so, the investor can refinance the house. The investor will need to appraise the house and it should have a higher market value after the renovation and housing appreciation, which gives the investor more equity. Let's say the house is appraised at $600,000, the investor can refinance the loan equal to 80% of the appraised value, which would be $480,000. This new loan allows the investor to pay off the original $400,000 mortgage, and pocket the $80,000 difference. The investor can then use the $80,000 as a down payment for his next BRRRR property. The investor then repeats the whole process to accumulate more investment properties. The BRRRR method allows investors to leverage the bank and build their net worth over time in the real estate market. The bonus to rental income is that properties tend to appreciate in value allowing an investor to cash out even more money as down payments for future properties.