Evaluating the Risks and Rewards of the BRRRR Method
11 Jan 2022
5 min read
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For investors who are looking to increase their opportunities for passive income, the BRRRR Method, or ‘Buy, Renovate, Rent, Refinance, and Repeat,’ is one leading method to do so, allowing investors to use one investment property to fund another. Though a pivotal way to effectively grow one’s portfolio, there are risks worth considering before pursuing the strategy. If the risks are overcome, the BRRRR Method proves to be an effective and powerful way to build one’s portfolio and find financial stability.
Renovation period and costs
No matter how hard you may lay out an efficient (or ambitious) timeline, unforeseen instances can still blow in to cause delays and uncalculated expenses. Whether it be a bad storm or a contractor taking too long to do their job, it should be expected that delays are just another part of the process.
Moreover, major expenses can make the difference between a profitable real estate investment and an unprofitable one. Hiring an inspector to do a thorough job at the start of a project can alleviate the surprise of unknown costs popping up down the road.
You are the manager
Having a rehab property means you are primarily the manager of the project. Working with contractors can be a hit or a miss experience and finding good ones can be a process in and of itself, particularly if you’re new to real estate investment. Expect to be a part of every stage of the process until your portfolio grows, and your contact list along with it.
When it’s time to rent
If your BRRRR property is meant to be rented out, progress delays and unexpected costs can mean a delay in when you’re able to take in tenants—meaning no cash flow in the time frame you had developed. Of course, if you have the financial runway to handle a delay, the rental period may be of no significance.
In the same vein as the rental timeline, the rental amount for your property is just as critical. With the BRRRR Method, the analysis of your initial numbers should include the anticipated rent. This important since it will indicate whether the property will have positive cash flow.
Why the BRRRR Method?
While the BRRRR Method isn’t always recommended for first-time investors, it can be a profitable investment strategy for seasoned investors—particularly if the risks are deftly navigated. It’s a fantastic way to make passive income, increase the rental portfolio, and build equity during the rehab process. Patience throughout the process is paramount and those who effectively learn the ins and outs of the strategy are likely to reap the benefits over a long stretch of time.
If you’re looking to learn more about the BRRRR Method for your next project, contact Temple View Capital Funding, LP (“Temple View) today.