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
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!
It was a smooth first transaction of mine. Jakob was communitive and resourceful. I will definitely be using them again.
October 22, 2019
The team over at Capital Fund 1 were all on the same page and communicating great with myself and title. They were quick to let me know the loan amount they could do. And only needed the essential documentation that matters. I'll definitely be looking fwd to using them again on refinances and trying out on the acquisition side.
June 21, 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
This is the best lender for investment properties. Excellent communication, no hidden fees, and most importantly, very fast turnaround! I was able to close my deals in less than 10 days with funding from Capital Fund 1.
March 4, 2019Raga dfw llc
August 27, 2021
I had a great project idea and needed hard money to get started. I had the good fortune to be referred to Noah Brocius at Capital Fund 1 ! Was a newbie but had an opportunity to describe my project. I was asked to submit my a idea with a flood plan ( s/family to a duplex ) a cost study , a simple loan application , and financial needs such as price, down payment and rent expectations.And within 24 I was approved and closed in 3 days! During the 16 months of the loan life I was treated like a million dollar client ! The whole gang was available for Q&A and always professional! Hope to do it again soon ! Thanks guys. JAS
July 17, 2018
Capital Fund 1 is made up of professionals who take their jobs seriously and are very good at quickly evaluating, making decisions and following through. It has been an absolute pleasure to work with them on our latest acquisition in Scottsdale. We could not be more pleased to develop a relationship with Capital Fund 1 and would absolutely recommend them to other investors in the Phoenix area.
September 27, 2016
Capital Fund 1 has always been great to work with. I've been working with them on deal for about a year and a half and it's always been a quick and easy process. Much better than many of their competitors - they don't require appraisals nor charge a bunch of exorbitant fees. I have worked with them in a broker capacity as well as have sent them deals of my own. Always easy to reach people on their team and always a pleasure to work with.
May 27, 2021