What is BRRRR?
BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat and is a great strategy to grow your rental portfolio with limited capital. One of the toughest parts about investing in real estate is the money needed for down payments to acquire properties. Most traditional banks will require a minimum of a 25% down payment and some banks may even more! With the heat in today’s real estate market, a 25% minimum down could be over $70,000 in most markets.
Being completely transparent, new investors will need some money to start with. Anyone promising $0 down on real estate investment loans is either lying or is your rich uncle. However, for new investors, using hard money as a key piece of your BRRRR strategy is a great way to buy a property with as little as 10% down. At Capital Fund 1 for example, we can lend up to 90% of the purchase price.
Financing your BRRRR strategy with a CF1 hard money allows you to leverage the advantages of both strategies. Hard money loans empower real estate investors to take down properties quickly with no credit checks, appraisals, or personal finances. While the BRRRR strategy informs investors on how to move through properties from short-term financial gain to long-term portfolio building.
Together, hard money will take investors through the Buy, Rehab, and Rent phases of BRRRR. During the refinance stage, hard money is beneficial because we do not report to any of the major credit bureaus and do not affect your income ratios need for traditional financing. At CF1, we take it a set further and do not charge pre-payment penalties in the scenario you move quickly through a property.
B(uy): Acquire a property with hard money at a discount by using speed of closing as a negotiating point.
R(ehab): Fix the property up so build value. This could come in the form of heavy rehab like adding square footage or aesthetic changes.
R(ent): Find a good tenant willing to rent the property at market rate.
R(efinace): Go to a traditional lender and refinance property. Since traditional lenders require appraisals, the appraised value should return much higher than what you paid for it. During the refinance process, the original hard money loan will be paid off and you will receive cash for the added value.
R(epeat): Take the closing proceeds and repeat the process again. Begin with hard money to build value, and refinance with a traditional lender to extract value.
For a more in-depth guide, see below
Jump to: BUY | REHAB | REFINANCE | RENT | REPEAT
The first letter in BRRRR is ‘B’ which stands for buy. When looking for a deal make sure you keep in mind that this will require an in-depth due diligence on your part. When running the numbers, consider the following: calculating the cost of renovations, estimating monthly rental expenses, and confirming that the rental income will provide a sufficient profit margin. There are several options can help you purchase a rental property, such as cash, a hard money loan, seller financing, or a private loan. Deciding which upfront financing to use may vary from deal to deal but using hard money in these situations can give you an edge up against your competition. With hard money you can purchase a property with as little as 10% down and with funding in 24 hours, it is treated as cash in closing. In the case of cash buyers, you can leverage the cash you have on hand for if (and when) things go wrong during the renovation. This step is necessary even if you are a seasoned investor because the banks will be pulling your bank statements when trying to refinance.
There are two key questions to keep in mind when rehabbing a rental. What do I need to do to make this house livable and functional? And what rehab decisions can I make that will add more value than their cost? At the base level, landlords must identify how to make their rental properties first livable and functional. Once these requirements are satisfied, updates or renovations that can add considerable value will be considered because in the end it will justify higher rental rates. Some investors will intentionally look for properties that need massive repairs because they know other investors will ignore them and the sellers will be more motivated to drop their prices. On the other hand, investors must be careful not to get stuck with a property that will cost more than what can be produced through rental income.
For many real estate investors, rehab is the most fun part of the process. Breathing new life into a dilapidated building is certainly the best way to increase the value! The more value you add in repairs to the property, the higher the chance you will receive a higher appraisal and better bank loan when refinancing the completed project.
Once the property’s rehab is complete, you as the investor can then turn your attention to putting a tenant in the property. This might entail screening and selecting tenants, managing turnover, and responding to maintenance and repair requests. This process can be done yourself, or you may hire a property manager that will do this process for you for a fee. Getting a tenant in the property is an essential component of this strategy because it not only provides the cash flow that allows you to profit off this endeavor in the end, but the property will most likely appraise higher in the refinance stage if it is inhabited by tenants and it may even be required by the bank.
Refinancing goes in hand with the next step, repeat. Refinancing is also the final step in getting the money your put into this investment with the BRRRR method. In this stage, you will refinance the loans you took out to purchase the property the rehab funding that is offered at Capital Fund 1. Typically, with a rental property, you will be refinancing into a long-term 30- or 15-year loan with a local bank, but Capital Fund 1 does also offer refinancing options. Since the bank will typically refinance on the same 75% ARV that your initial hard money loan would likely be based on, you can almost always expect to see all your money back that went into the purchase and rehab.
Since the bank won’t refinance until there is a tenant in the property and you have proof that there is viable cash flow, you will start turning a profit on the rental once the refi step is complete. Once you can refinance, you can pull your equity out of the property tax-free. With this new cash, you can use it to pay back your investors if there are any or use it to roll into a new project
Contact Capital Fund 1 today to get started getting your hard money loan!
Great experience so far with Capital I Fund - a colleague recommended them. I was funded in just a few days - would definitely refer them to other real estate investors - Roger N
June 14, 2019
I did not know i was able to refi while i was in the middle of rehab. the fees were low, but i should have used my own title company, that was not a good idea having them chose for me. not happy with the communication on that end at all. I did have contact with my processor and that was important. thank you for your help. I would like to see how a purchase money loan will work for me on my next flip.
September 27, 2019
I've worked with Capital Fund 1 over 6 years their hard money loan process is simple and interest return rates are sensible. They can fund a loan in 2 or 3 days as long as you provided the required info upfront. If your an investor who flips I'm not sure you can do better. That said, the caveat is you need to know what your doing.
May 10, 2019
Kolby was fast to repond and help us with all of our needs, totally recommend them and will be working with them in the near future.
September 13, 2021
Capital Fund 1 should every single real estate invostor's partner. I have done several fix and flip deals with Kevin at this awesome company and it's very friendly personnel. Couldn't be more satisfied. Their terms are way better than other competitors and their closing process is super prompt which is within one week to 10 days from start to closing. Just when I thought that their service is at it's best they have exceeded my expectations and actually came to my rescue at the last deal just a week ago. In January I was I'll advised with comps from a realtor about a property in Surprise and the realtor suggested a sale price that was way above the market. I didn't have any buyers for 2 plus months and I was hurting financially because another hard money lender was financing that property at very high rate. I leased the property and tried to put a conventional refinance loan but after over 400 pages of loan documents and unrealistic demands like showing funds for 12 months in advance and other grueling requirements the middle of June 2019 came and still didn't have confirmation to close. I grew frustrated and picked the phone talked to Kevin at Capital Fund 1 and told him the situation. He got with his underwriters and then within 5 minutes he gave me great long terms for a lease over 3 years which I immediately accepted. They were able to close the new loan in only four amazing short days. Thanks Kevin and Capital Fund 1 you have made me a partner for life and so should every investor. George Tohme
June 28, 2019
It was a smooth first transaction of mine. Jakob was communitive and resourceful. I will definitely be using them again.
October 22, 2019
This was my first time working with a hard money lender and Kevin Highmark was extremely helpful in explaining the process of getting funded. He also helped me determine the price level for properties I could buy based on my finances. The process of getting funded was super easy and I even qualified for a smaller percentage down payment than I was originally quoted! Will definitely use Capital Fund 1 again
August 12, 2019
Love working with CF1. Great communication, efficient and prompt responses. Have worked with CF1 on several fix-n-flips as well as stating to work with them on buy-n-holds this year and have never had any issues with them (have always closed on time :). Will continue looking for opportunities to work together. Kudos on the excellent service team! I appreciate you guys. - Julian LUXTIGE HOMES
February 11, 2019