Essentially, the BRRRR method is an intentional strategy of purchasing, flipping, renting, and refinancing a property rather than selling it, allowing the investor to gradually own more rental properties over time. The BRRRR method is a cycle that allows for repetition and growth, turning relatively little initial capital into a strong investing portfolio.

BRRRR stands for: Buy, Rehab, Rent, Refinance, Repeat.

Let’s take a look at each step of the BRRRR real estate investment strategy in closer detail.

The first step is for an investor to buy an investment property under market value. If you are not paying with cash, such as with a hard money loan, it is recommended that you aim to finance between 70% and 75% of the property’s cost, which suggests a down payment of 25% to 30% of the property’s total cost.

It is very important to buy under market value so that there’s room for a higher property value appraisal and a return on your investment, especially considering the renovation costs that will go into rehab and maintenance. Some real estate investors find BRRRR properties that meet these criteria by "driving for dollars" or specifically seeking out distressed property.

The next step is to rehabilitate your rental property with the goal of making it a livable, functioning and maintainable space. As you invest in your rehabs, it’s ideal to focus on building components like electricity, plumbing, or the structural integrity of the building first. With any investment, you want to carefully consider which kinds of rehabs are going to create the most benefit and increase the value of the property the most. Unnecessary, luxury upgrades like adding a pool are not as important as making sure there are not any holes in the walls and the carpets are clean.

Generating rental income is where you will start to see a return on your investment. Once your property is ready to go, starting a rental business and beginning to accept tenant applications is your next step.

Real estate experts recommend following the 1% rule when it comes to setting rates for your property. This means charging monthly rent based on 1% of what you paid for the property. For instance, if you paid $150,000 for the property, you could charge a monthly rate of $1,500.

While it is always good to look at competitive rates in your local real estate market to ensure that tenants will be interested in your property, adhering to the 1% rule is a good way to strike a balance of affordable for tenants and profitable for you.

After you have started to generate income, refinancing the property is your next step. This means requesting an appraisal for the property, which should be higher as a result of the time you invested into flipping it. Most BRRRR investors seek a cash out refinance, in which they receive a loan based on the higher appraisal value and can hopefully lower their mortgage payment.

Certain mortgage lenders have particular criteria they require of investors to qualify for a cash out refinance, such as a specific credit score, debt to income ratio, or interest rate.

In order to keep building your real estate portfolio, the final step of the cycle is to take the money from the cash out refinance and invest in another property to flip and refinance. With a big enough real estate portfolio, the BRRRR method generates passive income and allows your success in the real estate world to increase exponentially, hopefully growing able to cover future mortgage payments and rehab costs. As long as you are confident that you can increase property values for the projects you choose, you can continue to use the BRRRR strategy to generate positive cash flow at the same time that you scale your portfolio.

The clearest benefit of the BRRRR method is its relatively low barrier of entry for new investors. Paying a down payment and a mortgage for a startup home is cheaper than purchasing a high-end property that is immediately ready for rent. There is also lower competition in the market. If you are willing to put in the work and extra capital involved in flipping the property and getting it ready to go, the cost will be lower in the long run.

Also, as previously mentioned, if you repeat the cycle long enough and are able to secure renters, generating passive income is a great situation to be in. Steady rent payments and multiple properties with higher equity make it easier to continue expanding your real estate portfolio. With more passive income comes a higher credit score and an increased likelihood that you will qualify for better loans.

The five steps of the BRRRR method—buy rehab rent refinance repeat—represent a chance for an emerging real estate investor to lay the groundwork for a solid and growing rental business. Though it involves a lot of work and perhaps some initial patience, the BRRRR method is a great entryway for new and experienced investors alike.

For a clear visualization of the BRRRR method, you can download Innago’s free BRRRR method flowchart above.