BRR Method For Real Estate Investors Using Hard Money
By G. David Lapin On June 23 2023
The BRR method, also known as Buy, Rehab, Rent, Refinance, is a popular strategy used by real estate investors.
This method allows investors to leverage financing to acquire distressed properties, renovate them, generate rental income, and eventually refinance the property to access their capital for further investments.
Here's a breakdown of each step in the BRR method:
Buy: Identify and purchase a distressed property at a discounted price. These properties are typically in need of repair or located in areas with high potential for appreciation.
Rehab: Use a hard money loan to finance the purchase and renovation of the property. Hard money loans are short-term loans that are backed by the property itself, allowing investors to access quick financing with less emphasis on creditworthiness.
Rent: Once the property is renovated, find tenants and start generating rental income. Proper tenant screening is crucial to ensure reliable cash flow and minimize vacancies.
Refinance: After a period of time, usually six months or more, when the property has stabilized and increased in value, refinance the hard money loan with a traditional mortgage. The new loan amount should be sufficient to pay off the hard money loan and potentially provide some cash-out for the investor.
Here are some key considerations when using the BRR method with hard money:
Property Selection: Look for properties that have potential for value appreciation or significant equity gain after renovations. Research local market trends and consider factors like location, rental demand, and future development plans.
Renovation Costs: Accurately estimate the costs of repairs and renovations. Overestimating costs can eat into potential profits, while underestimating costs can lead to budget overruns and financial difficulties.
Cash Flow Analysis: Calculate the potential rental income and expenses to ensure positive cash flow. Consider property management fees, maintenance costs, property taxes, insurance, and other expenses associated with owning and renting the property.
Hard Money Loan Terms: Evaluate different hard money lending sources to find competitive interest rates, loan terms, and fees. Consider factors such as the loan-to-value ratio, repayment period, and prepayment penalties.
Refinancing Options: Research and establish relationships with traditional lenders who offer favorable terms for refinancing. Ensure that the projected post-renovation value of the property meets the lender's criteria for refinancing.
Remember, the BRR method can be a powerful strategy for real estate investors, but it also carries risks. It's essential to conduct thorough due diligence, have a solid understanding of the local real estate market, and work with experienced professionals, including contractors, property managers, and lenders, to maximize your chances of success.
For more information on our Hard Money Loans or Trust Deed Investments, call our office at 714.838.1474 ext. 102 or visit our:www.hanovermc.com