How to Analyze a BRRRR Deal 

BRRRR is a popular real estate investment strategy that involves capitalizing on forced appreciation and cash out refinancing to fund continuous real estate investment in rental properties. The acronym ‘BRRRR’ stands for buy, rehab, rent, refinance, and repeat. 

What is BRRRR Method? 

The BRRRR method is a kind of hybrid house flipping and traditional buy-and-hold investment. Like flippers, BRRRR investors buy properties (buy) with the intention of adding value and forcing appreciation through renovations (rehab). However, rather than selling the property afterwards, BRRRR investors find tenants to rent out the property to long-term (rent), like buy-and-hold investors.  

After a tenancy has been established, the BRRRR investor can get the property reappraised and their loan refinanced to reflect the post-renovation increase in property value. By using cash-out refinancing, the investor can draw on their now increased ownership stake to take out a much larger loan and receive the difference paid in a lump-sum payment (refinance). These funds are the goal of a BRRRR investment and can be reinvested in the next BRRRR property (repeat). Over time, this final step of the BRRRR method can help investors achieve passive income and repeat their success indefinitely. 

Benefits of BRRRR 

BRRRR has several benefits over other, more traditional methods of real estate investing. BRRRR allows investors to use their existing equity to roll over funds continuously without needing to take out additional loans for capital. You’ll also reap the benefits of steady income from your tenants’ rent payments to fund the mortgages. And despite some up-front costs, you’ll be focusing on undervalued or distressed properties for your real estate investments, which means lower competition and a generally easier transition for beginners. 

When BRRRR Can Go Wrong 

There are two pitfalls of the BRRRR strategy. Firstly, the investor must buy a property under market value, often a distressed or run-down home. This ensures there is enough opportunity to add value and get a higher appraisal after renovations.   

Second, the investor should never invest more than 75% of the property’s after-repair value, or ARV. This rule ensures that you don’t run out of capital and can perpetuate the BRRRR investing cycle. 

Analyzing a BRRRR Deal 

Before you purchase a property intended for the BRRRR method, you need to make sure that the deal adds up financially. This is the purpose of doing a BRRRR analysis using a tool like a BRRRR spreadsheet. By analyzing a BRRRR deal, you can ensure that you’re buying a property in the right price range to reach the minimum ARV you need to make a profit. 

Although it’s always useful to enlist the help of more experienced real estate experts or BRRRR investors when analyzing a deal, you can do this analysis on your own. You’ll need information about the property and its expenses, your planned rehabs/renovations, and how much you can expect to rent it out for once rehabs are completed.  

Ultimately, you’ll want to know a few key figures. You’ll want an idea of your net operating income, which is your rental income minus operating expenses. This is the cash you’ll keep after all regular monthly expenses are taken care of. You’ll also want to know your annual cash flow, which subtracts your mortgage payments, and your cash-on-cash rate of return, which measures your cash flow relative to the amount of cash you initially invested in it on a pre-tax basis.  

These same metrics are relevant when you complete the refinance portion of the BRRRR method. Your cash-on-cash rate of return should hopefully increase, as you will hopefully secure a lower mortgage payment upon refinancing your loan. You’ll want to know your cash flow both before and after the refinance so you can plan and coordinate capital expenditures and other investments properly, if necessary. 

Taking Next Steps 

The above metrics won’t necessarily tell you whether your planned BRRRR deal will or won’t be successful. However, they will give you a set of baseline expectations and a clear picture of which factors most affect your desired cash flow and rate of return. You can use this information wisely to decide which property will make the best BRRRR deal among several options or to strategize with an in-progress BRRRR deal. And if your deal isn’t working the way you’d like, you can play around with various expenses (e.g., repairs, rent, property management fees, etc.) to learn what it would take to make sure your deal does work.  

Conclusion 

It’s important to think critically about any deal before making a property investment, and BRRRR is no different. Every BRRRR investment should be preceded by a detailed analysis and deal breakdown, potentially including a BRRRR method example or case study so that you fully understand the process. You can download a copy of Innago’s BRRRR spreadsheet above.