BRRRR is an acronym which stands for Buy, Rehab, Rent, Refinance and Repeat. And while the strategy itself is not intrinsically flawed, the acronym BRRRR used to describe that process has resulted in some unintentional consequences. In this post you’ll discover what these 3 harmful flaws are and how you can avoid them.
#1: It Focuses on Traditional Deals
The first flaw of the BRRRR acronym is it puts the focus on a traditional version of real estate investing. There are certain techniques that are traditional, however only following traditional techniques excludes you from all the creative methods. You end up rejecting deals that could have made an unbelievable amount of money if you had applied the right creative technique. Having a traditional focus puts you in a box and there’s so much opportunity beyond that.
In my deals I think outside the box and apply these creative techniques using the BRRRR Acronym:
Buy – Using creative financing.
Rehab – A rehab isn’t always necessary; if we do we might move a tenant buyer who will do the rehab for us.
Rent – If we do rent, it’s done to maximize the results.
Refinance – No need to refinance because we took it over subject to.
Repeat – As many as we can.
To learn more about all the different techniques you can apply, I would encourage you to check out my free on-line course. The curriculum combines many of my most popular videos and some additional trainings as well.
Traditional BRRRR Deal:
Even as creative real estate investor, you can still do traditional deals. Here’s an example of traditional BRRRR deal that that one might do:
- Buy a property for $20,000.
- Renovate for $15,000 (you are all in for $35,000).
- Rent it out for $900 or $1,000 a month.
- Refinance, take that $35,000 out and do a long term 30-year fixed rate loan.
- Repeat as many of those deals as you want.
Now this technique is good to use in specific areas on certain houses. Otherwise, when you focus only on doing BRRRR deals, there are so many other techniques that are excluded because it’s traditional in nature. With this narrow focus, you end up missing other opportunities.
#2: It Puts Emphasis on the Strategy
The acronym puts an emphasis on simply applying the strategy. The problem with that is it excludes the most important focus you should have in real estate, which is the deal and the results.
Focus on the Deal
You want to have a deal focus. The BRRRR acronym assumes every deal is the cookie-cutter, but you want to be focused on what the best strategy is for each specific deal. For example, if you were to buy a vacation rental that is rehabbed, furnished, and already rented, you don’t have to apply the rehab and rented steps in the acronym. If the only problem with the is that the management is charging 35% of gross, then all you need to do is to remove that management and put in your 10% of gross management. Now you’re earning an extra 25% of the gross just by switching management.
When your focus is on the deal, it keeps you from automatically checking off all the steps in the acronym and positions you to better achieve your financial goals. This means that on a deal-to-deal basis, you’re applying the right strategy to produce the best results.
Focus on the Results
Most real estate investors are in the business for 3 reasons:
- They want a return on investment on their existing capital
- They want more money right now
- To build wealth and increase their available cash
Knowing the results you want, helps frame which strategy you take. I go into detail about this concept of cash now vs. building wealth in my book How to Be a Real Estate Investor, which I give away for free.
#3: It Promotes the Wrong Order
Now, because it’s an acronym, people want to start at the top with the Buy, which is the WORST place to start. You must begin with the end in mind. You want to think about the result you’re trying to accomplish, which helps shape the process and ensures you make good decisions.
Since you want to do a deal that is so good you want to repeat it, make sure you know what the terms, requirements and underwriting guidelines are for refinancing. Take all the necessary steps ahead of time, to ensure the deal is a success. Often beginner investors will buy up a money loan, rehab and rent it out, then realize they missed a few details. Unexpectedly, it’s taking an extra 12 months to get refinanced, killing all their profit. You need to begin with the end in mind and work your way backwards.
Some things to think about when considering renting your property are:
- Who are you renting to?
- Do you want to be in the traditional renting business?
- Do you want to be in the business of vacation rentals?
Do you want to be in a situation where you need to evict a single mom and her kids? With vacation rentals you get the benefit of more income and temporary tenants, so you don’t need to worry about evictions. However, you end up dealing with partiers and spring breakers trashing the place. The bottom line is you need to know what you’re getting yourself into.
I would argue that most single-family homes should be flipped using short term, cash now techniques. There are very few ways that make a single family home viable as a long-term wealth building strategy. I have a video on those techniques, 3 Ways to Turn a House Into a Cashflow Machine, so it can be done, however it’s often not as profitable as you hoped.
Have you ever totally rehabbed a house, overseeing the project from start to finish with a contractor? It can be a minefield! There are so many problems investors run into. I have a video called 7 Things to Never Say to a Contractor, which will help get you started and hopefully avoid some of the pitfalls.
There is this idea that you must repeat, repeat, repeat. Lots of investors have bought 20, 30, 60 single family homes over time, only to get fed up with the hassle and headaches and they sell the entire portfolio. It is possible to own 60 single-family homes and be angry about it instead of being grateful.