Buying property is a capital-intensive process, but it is one of the most lucrative investments. If you want to maximize your income from real estate, take advantage of the BRRR real estate strategy. No, it is not about the cold temperature. It stands for Buy, Renovate, Rent, and Refinance.
Buy
First of all, look for a great deal in a good neighborhood. Make sure that the location has the potential for rental income and that the property is undervalued. A seller usually sells a property for less than its market value because they want to get rid of it quickly, or because it requires renovation.
Renovate
The next step is to upgrade the property to make it functional and livable. Even if the property is still in good condition, you may have to do some renovations to increase the rental rate. Fix any damages, switch to hardwood floors, install vinyl sidings, or improve the design of the interior to increase the property value.
Make sure not to go crazy when renovating. Do not go overboard in expenses because you might end up spending more than what the rental income can produce. It is essential to do a cost-benefit analysis of the property to avoid making faulty investment decisions.
Rent
When the property is ready for occupancy, the next process is to find good tenants for the rental phase. Always screen potential occupants and do due diligence on them. Delinquent rent payers can damage your investment. Always respond to your tenants’ concerns and provide necessary property maintenance to keep them from relocating to other properties.
Refinance
Do not be afraid of getting financing for a property. Once it is renovated and rented, get a bank to refinance the property. The rental income will pay for the monthly amortization. Finally, use the cash-out refinance to fund your next rental property.
Pros and Cons
The main advantage of this strategy is the high potential for returns. You can easily create passive income in the long run. You build equity and create passive income.
Waiting time is a disadvantage, though. First, you have to look for a potential investment property. Second, you have to wait for renovations to finish. Third, you have to take the time to screen tenants. Nonetheless, the waiting time is worth it.
Last Words
Using the BRRR real estate strategy, you can create a real estate empire. Simply buy, renovate, rent, and refinance. Repeat this strategy until you have enough properties to handle.
