Investing in real estate can be an excellent financial move, as property often increases in value over time. With the world population consistently growing, it should not be hard to sell the property to a potential buyer or rent it to interested tenants.
If you want to make sure you get your money’s worth in investing, it is essential to know the best techniques in the real estate business. The most popular strategy right now is BRRR investing. BRRR is an acronym that stands for four steps in investing. You buy property, rehabilitate it, rent it out, and apply for refinancing. Some investors call this strategy BRRRR, with the extra R for repeating the entire process once more, assuming you were successful the first time. We will discuss the steps of this method further in the following segments.
Before you start investing in real estate, you need to make sure you have the budget to enter the industry. Investing means you will have to purchase a property, and these transactions usually involve a significant amount of money. If you do not have enough money yet, you can try to get financing first by visiting a bank, a traditional lender, or a private investment company.
Ideally, you find a property suitable for investing before going to a financier. It is easier to get approval on a loan if you can clearly present what the money is going to be used for. When looking for property to buy, look for units tagged at lower than market prices. The cheaper you can buy a house, the higher the potential profit you have after refinancing.
While it is essential to secure the property at a low cost, you also need to ensure rehabilitating it will not lead to undesirable expenses. It is imperative to make the property as attractive as possible, but the costs of repairing and improving the property should be reasonable to warrant a purchase.
Rehabilitating the property is a two-way street. You do not want to go overboard on modifications, but you also should not skimp on repairs and necessary additions. For instance, if you bought a property with a swimming pool, investing in a pool control system to regulate pH levels is a smart move. Not only does the control system create cleaner water, but it also protects several components of the pool from damage. Meanwhile, buying a diving board can be considered an unimportant purchase since it does not add value to the property in the long run.
Do not be afraid to seek professional help in rehabilitating your property. While you initially pay more for labor, you save on long-term costs by hiring a contractor since they are unlikely to make mistakes you need to fix later on. Additionally, employing an experienced contractor means he (or she) can better achieve the quality of design you have in mind for your property.
Renting it Out
Once you complete refurbishing the property, it should be attractive enough to get tenants lined up and applying. Getting the property rented is necessary for a successful BRRR run because unoccupied properties are rarely approved for refinancing.
While it is not your primary method of getting profit, renting can make considerable money in itself. To find out how much you should charge for rent, look around your area, and scout the average going rate for rentals. Make a fair judgment of how much other establishments charge for rent, compare the quality of their property with yours, and you should come up with the right amount for your initial rent costs.
Refinancing is often the most challenging part of the BRRR strategy, as it can make or break your investment. Once your property has been rented out for a significant period, you can start applying for refinancing by going to a bank or private loaning firm.
A successful investment means the bank will approve your refinancing for a value higher than what you originally bought the property for plus what it cost you to rehabilitate it. However, that is not always the case, so make sure there is a backup plan ready if ever you draw the short straw.
If your BRRR attempt went well and you made a lot of profit, you can repeat the process with another property, or you can invest in a different industry altogether. Some investors choose the latter despite getting success on the first try, as the BRRR strategy can sometimes take years to pay off, and not everyone is comfortable with this length of time. BRRR has its own share of pros and cons, so take your time to weigh each of them before making a decision.