The "BRRRR" Investment Strategy

As the market continues to evolve in every single direction possible, Real Estate Investors need to evolve as well in order to stay on top of long and short term market trends. There are (somewhat) newer strategies available to R.E Investors given the temporarily low interest rates, delta between unrenovated and renovated properties, plus how active the rental market is right now.

We’ve all heard about flipping houses, but have you heard about BRRRR-ing properties or the “B-R-R-R-R Strategy”? This investment strategy allows you to “flip” a home while maintaining the property in your portfolio. The Westside Partners of TW are all about that long term wealth building and we are going to dive into the details below, and what this B-R-R-R-R Strategy is all about, enjoy!

BUY

The first step in this investment strategy is to buy a property that’s in need of renovations. Make sure that you purchase the home for a price that makes sense for its value. Ask your Realtor to look at aged listings that have been overlooked by the rest of the market. Acquiring a home for under market value will always be the goal! You will also want your agent to put together a comparative market analysis to assess what the home would be worth after the repairs have been made, referred to as your ARV (after repair value). This will impact the refinance stage of the process and will determine if your purchase price and your renovation budget make sense for your goals. Be sure to perform a thorough inspection of this type of home so that rehab budget isn’t greatly impacted.

REHAB/ RENOVATE

This phase of the BRRRR strategy is so important, that it can make or break the deal. There are a few critical points and factors you need to consider before taking a few stress relieving hacks at that ½ inch drywall board. Ask yourself these questions: What are the MAJOR repairs or renovations needed to bring the property up to speed? Major items include, but are not limited to:

Electrical

Copper, aluminum, knob & tube? How old is the panel? What amperage does the panel support? Do we need a full redo here? Do we need to take down any walls to access the items needing replacement?

Plumbing

Lead water lines, iron, copper, kytec, PEX pipe? How does the water meter look? Are the waste/in home sewer lines new or old? Does everything need to be ripped out an redone?

Structure

How does the roof look and what is the age? Any signs of a cracked foundation, water, pests entry? Any holes or clear damaging to the exterior walls? Do the floors or ceilings slant a certain direction?

Mechanical

How old is the furnace, air conditioner, air handler, hot water heater, water softener? Do they still work, and what condition are these in? Mechanical equipment is one of the most underestimated and misbudgeted costs for a renovation. After you’ve reviewed what major items need to be addressed, does the property still make sense from a numbers perspective? If yes, time to move on to the minor renovations needed to bring the property up to snuff. Most of the items here are cosmetic, such as flooring, kitchens, bathrooms, doors, windows, painting, and landscaping. Alright, does this deal still look good on paper? How long is all of this going to take? What contractors or constructors are available within the timeframe you need? Are they reputable? If you anticipate the renovation to take 3 months, can you afford an extra 2-3 months of holdings costs on the property in case of any unforeseen setbacks? Are you going to manage the renovation yourself, or are you going to hire a general contractor to oversee the operations?

RECEIPTS

Did you know that substantial renovations and energy efficient upgrades to a home may qualify for government rebates or tax credits? Look into these programs and check out what you’re eligible to claim based on your renovation plans.

RENT

Once the property is in tip-top condition, you can rent the home for top market value. Be sure to connect with your Realtor on what the maximum rent that property can be rented for since this will impact the amount of funds that can be pulled when refinancing. Or, to rent the home for the top dollar, list your rental listing publicly with your Realtor on MLS. It is important that your tenants have been properly screened (criminal background check, credit check and references) in order to prevent headaches for you in the future. Appraisers may also ask for proof of payment from your tenants to show a history of income, so a solid tenant is important for the next phase of this investment strategy.

REFINANCE

Drumroll please! The time has come to see how much cash you can pull back out of that property! What we call a “Perfect BRRRR” is when you recapture all of your deposits, and renovation costs once the refinance is complete? A refinance is when you apply to get a new mortgage on your existing BRRRR property. With all the upgrades you’ve now put in the home, and with a tenant in there paying rent (which said income you can typically use towards a new mortgage), the home should be worth a decent amount more than what you paid, so lets get a new mortgage based on those two important factors, and get your cash out!

REPEAT

Now, with all of this equity in hand, it’s time to do it again!

Wanna chat further? Email us at homesplus@westsidepartners.ca