Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple

by David Greene

The single, most important act a real estate investor can do to grow their wealth is to add value to a property—be it through purchasing below market value or adding value through a rehab.

Market distress Personal distress Property distress

Market distress is when an entire market, economy, or area is in a rough time. Think of 2010 when the housing crisis was at its peak and there were “for sale” signs on every four to five houses in some markets.

This is the easiest time to find deals, but the one you have the least amount of control over. If you rely on market distress, you will spend the majority of your time waiting and not investing.

Personal distress is how professional, full-time investors target deals.

Personal distress is when the owner of a property is in some form of distress in their personal life that is affecting their finances. Examples would be a divorce, a...

sudden medical expenses, etc. Personal distress is the best form of distress to target if you want to find deals with the highest m...

Property distress is when the property itself is in such bad condition that its value is affected. Properties that need large amounts of work to be livable are a form of property distress. Examples include leaking roofs, foundational problems, significant pest problems (termite damage), obsolete floor plans, etc. Property distress is the form of distress that involves the most work, but it is also the easiest form to target and the one you have the most control over finding. As a BRRRR investor, this is the type of distress you will typically find yourself targeting the most.

The 1 percent rule is a very simple maxim that states if a property will rent for 1 percent of the price you paid for it, it’s likely to cash-flow positively.

I want my total expenses for a property (acquisition plus rehab) to add up to 75 percent of what the property will appraise for when I’m finished. It is essentially saying I’m willing to pay 75 cents on the dollar for what I buy.

Understanding how properties are valued is extremely important in real estate investing. If you understand what impacts a property’s value, you can know what to manipulate in order to make your property worth more money.

I look for three things in a deal. To be all-in for 75 percent of ARV. To cash-flow positively. To be in an area that won’t cause me a headache.

If you want to overcome fear, get good at analyzing deals.

Math won’t lie to you. It’s not subjective. Math won’t confuse you or leave you feeling disillusioned. What Brandon is really saying is this: If you’re feeling afraid of the deal, get better at understanding what the deal is with concrete numbers and the fear will disappear.

The five inputs in deals are: Rent Mortgage Tax Insurance Property management fees

If you know you are going to be tearing a house down and replacing the majority of it, and it’s a great price, consider making your offer stronger without raising your purchase price by making it an “as is” sale. Waiving the inspection contingency if you weren’t planning on using it anyway is a great way to do that—making your all-cash offer even stronger.

Most houses that fall out of escrow do so because the buyer found something during the inspection period they didn’t like. Others, because the loan wouldn’t go through. Maybe the buyers had bad pre-approval letters, maybe there was a condition of the property that came up during underwriting and the underwriters rejected it. There are tons of things that can go wrong, but the end result is always a dejected, frustrated seller who had their hopes up when they went into contract and found themselves crushed when they fell out.

My goal as a buyer who wants to “buy right” is to find these sellers when they are at a point where they are about to give up, and swoop in as a savior able to close the deal.

Should you offer significantly less than the asking price, it won’t be received as offensively if the offer is all-cash, because all-cash offers are expected to be lower. This can play a positive role for you as well.

When you are able to make all-cash offers, aim your sights on properties in such bad condition that only a cash offer could buy them. Tell your agent that’s what you’re looking for. Tell everyone!

I’ve learned to look at money like it’s a seed for me to plant. My seeds are used to produce more seeds, as my money is used to produce more money. I have told myself the purpose of earning money is to invest it, and spending money is really just eating into my future. This attitude helps me not to feel entitled or discouraged about not being able to spend what I make.

Why would a BRRRR investor decide to sell instead? One reason might be they realized the rents aren’t going to be as strong as they anticipated. If you realize the rents are going to be lower than you thought, it may make sense to reanalyze the deal as a flip and see if it’s better to sell it for profit rather than keep it.

Your Core Four is made up of a: 1. Deal finder; 2. Lender; 3. Contractor; 4. Property manager.

There are three numbers you must be able to crunch to know if a property will make money: 1. Acquisition cost (price to buy); 2. Rehab cost; 3. ARV.

Tax liens: Buying properties that owe taxes to the state or county is another form of finding deals many investors don’t pursue.

consider reading Real Estate Note Investing by Dave Van Horn).

When driving for dollars you want to look for signs that a property is being neglected. This creates a situation where you are far more likely to find an owner that is more motivated to want to sell it. Some signs of obvious neglect are: An overgrown lawn Newspapers piled up in the driveway Neglected landscaping Dead grass Boarded-up windows Rotting wood A roof with plants growing on it Broken windows

Use multiple agents to find you deals. Use agents on large, successful teams. Call team leaders and ask who their top talent is for working with investors. Find agents through your Core Four.

this doesn’t necessarily help you. One trick I’ve learned to determine if I’m overpaying for an item of work is to ask the contractor how much the materials will cost them for a job, then ask how many hours it will take for the labor. Once I have these two points of data, I can pretty easily tell if I’m overpaying or not.

Bathrooms One of the most common and easy-to-implement upgrade hacks is using high-end, expensive tile when the surface area it will cover is small. This is most often found in bathroom floors or bathroom showers.

One way to accomplish a quick and easy upgrade hack in the kitchen is to purchase stainless steel appliances instead of standard white appliances in situations where the appliances need to be replaced anyway. Appliances aren’t cheap, and replacing perfectly fine and operational appliances with newer, nicer, fancier ones is usually a bad use of money in a rental property.

Granite is much more durable than other options and difficult for tenants to wear down or break. The big thing to look out for here is the price of the labor to install them.

If you’re going to be replacing the countertops, you’ll probably want to replace the backsplash as well (or add one if you don’t have one). Look at pictures of kitchens with and without a backsplash—it makes a big difference.

When landscaping, consider using items that won’t likely ever need to be replaced. Pouring concrete is more expensive than putting down sod, but it’s very difficult to mess up concrete. Sod can die pretty easily and your tenants aren’t likely to take as good of care of it as you would. Using mulch can be another great hack, particularly because it’s so cheap. Mulch can be bought for a couple of dollars a bag and can be replaced with every vacancy for a very low amount of money. If you put in a yard that relies on a complicated sprinkler system, you are adding more things that can break and unnecessarily increasing your repair costs.

If you buy a property with carpet that needs to be replaced (this will happen often, trust me), consider replacing it with a very tough and durable laminate instead of more carpet. Carpet is the cheapest option, but it’s also the least durable and easiest to be ruined. You are almost guaranteeing you’ll be replacing it with every new tenant, or at least every other new tenant. While laminate is more expensive at first, it will save you lots of money in the long run. In addition to that, your house will likely appraise for more because of it! This gives you multiple benefits, which is the spirit of upgrade hacking.

The point of upgrade hacking is to find fixed costs (things you had to do anyway) and add value through creating work with your variable costs (using better materials, adding simple upgrades, etc.). Knowing this, I’ve discovered that upgrade hacking is most efficient when significant work already needed to be done. It’s very hard to work this angle on “turnkey” properties (those that don’t need any work other than to “turn the key” and open the door) because you have no fixed costs. If you’re buying properties in good condition, there is no reason to upgrade hack.

I can only improve the square footage of the home by adding square feet. Additionally, this only brings value if your property is less than or at least equal to the surrounding properties regarding its size. If you already have the biggest house in the area, making it bigger won’t make it worth more. What we want to do is look for properties that are unusually small and make them bigger. This is where we get the most bang for our buck.

There are a few more ways you can learn to save money and add value on a rehab as well. For example, you can save on remodeling your kitchen by painting kitchen cabinets rather than replacing them. Many investors make the mistake of assuming they need to replace cabinets in every property they buy. This isn’t true! I rarely ever replace them and in the majority of fixer-upper properties I buy, I paint them.

In most modern-day kitchens, people are opting for either very dark cabinets or white/light gray cabinets. I’ve found that it’s one extreme or the other. You want to avoid the old brown oak style, and if you have those types already in there, stain them a darker color.

Another area to consider in your kitchen is tiling the floor instead of putting laminate or linoleum. The kitchen floor is going to take a beating and will get worn or damaged faster than anywhere in the house, and a material like tile will be more durable and take the punishment.

Though you can save money on—and add value to—bathroom remodels by tiling a shower, don’t put in a glass shower door. The reason is pretty simple—glass shower doors are extremely expensive, easy to break, and easy to get moldy. They need to be cleaned frequently and your tenants often won’t do this. Furthermore, they don’t do much to improve the aesthetics of your bathroom, at least not for the amount of money you spend on one.

Skilled labor is more along the lines of someone who can pour concrete, build retaining walls, install gas lines, install sprinkler lines, etc. We want to avoid skilled labor as much as possible when investing in real estate because skilled labor is expensive. Oftentimes you are paying someone for a job that requires a license, extensive training, years of experience, or all three.

In general, you’ve got four common options: carpet, wood, laminate, or tile. Carpet is the cheapest but least durable—not ideal. Wood looks the best but is very easily stained, scratched, or destroyed—also not ideal. Laminate is a happy medium of durability, aesthetics, and not too inexpensive. Tile is the most expensive but also the most durable.

when reviewing flooring options your best bet is to shoot for: Tile in bathrooms and kitchens Laminate everywhere else Carpet in bedrooms if it’s already in good shape

I’m an investor. I don’t come up with solutions. I buy properties. What I do is hire people to come up with solutions. I don’t need to look at problems, worries, or “what ifs.” What I need is to take whatever that problem is, convert it into a number, and plug that number into my deal to make sure it still works out. I need the contractor to solve the problem and give me the number. That’s it. Seeing things this way enables me to move forward with confidence where other investors get scared and back out.

My favorite method is to send the money in 25 percent draws, and ask them what work they will be doing with each draw. After they have finished the work with the money from the first draw, this is when I send someone to confirm the work was completed. I include the scope of work that should have been done so my team member knows what to look for, and I have them send me pictures and videos in return.

BiggerPockets has a feature you can find at www.BiggerPockets.com/calc that takes all the work of analyzing a deal and does it for you.

Buying in the path of progress allows you to pay less when you buy, wait, then see appreciation. It is one of the tricks for “buy low, sell high.” Most of the BRRRR process is about forced appreciation. This is appreciation we create through buying right, wise renovations, and a shrewd understanding of numbers. While forced appreciation is usually a safer bet because you control it, you’d have to be a fool to just ignore market appreciation as well. Market appreciation should always be looked at like icing on the cake. Your BRRRR process is the actual cake.

If you can buy a home in the path of progress and BRRRR it, why wouldn’t you? The idea is simple. You look for the direction you believe housing values are likely to rise, you buy there, and you wait.