This article is an excerpt from the Shortform book guide to "Buy, Rehab, Rent, Refinance, Repeat" by David Greene. Shortform has the world's best summaries and analyses of books you should be reading.
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Is the BRRRR method difficult to master? What are some BRRRR method examples that make it easier to understand the process?
Many real estate investors are opting to use the BRRRR method coined from David M. Greene’s book, Buy, Rehab, Rent, Refinance, Repeat. It can be a little daunting to invest so much money with a method you’ve never used before, but there are BRRRR method examples that you can follow.
Let’s take a look at an example of the BRRRR method that walks you through the different stages of the model.
What Is the BRRRR Method?
The BRRRR method is the most efficient way to build wealth and gain financial freedom by developing a large portfolio of investment rental properties. It’s laid out as so:
- Buy a property below market value and pay full price (without mortgage payments).
- Rehab, or renovate the property, paying for it out of pocket.
- Rent the property.
- Refinance the property.
- Repeat: Use the money from refinancing to buy and rehab a new investment property.
The goal is to pay as little as possible for the property and rehab it to increase the value as much as possible. Ideally, through refinancing, you recover all of your investment (or sometimes more), and you use that money to buy and renovate the next property. (Greene acknowledges that recouping your entire investment is a “home run”—something to strive for, but not something to expect on every project.) By pulling your money back out of the project, you make the same dollars work for you over and over, thereby increasing the velocity of your money.
Here’s one BRRRR method example: Imagine you find a fixer-upper for $95,000 and spend an additional $25,000 on renovations, making your total initial investment $120,000. After the improvements, the home is appraised for $160,000. You refinance, and the lender grants you a loan for 75% of this ARV, or $120,000. You’ve recovered your entire investment to use for your next property, and, as long as the tenants’ rent covers your mortgage and expenses, you’ve gained a consistent source of income. Greene asserts that even if the income from each property is just a few hundred dollars a month, this model allows you to quickly build your volume of properties and multiply that cash flow.
A BRRRR Example in Detail
To duplicate the BRRRR method example above, you must go through intricate steps that require the utmost work and dedication. This ensures that the process will go as smoothly as possible. Let’s look at this example in detail, by each step.
Getting a Good Deal on a Home
Using the example of the BRRRR method above, imagine you want to recover a fixer-upper that’s $95,000, which is under market value. To identify if this is a good deal, Greene says you have to determine the property’s ARV (after-repair value), the renovation costs, and how much you’ll be able to charge for rent.
First, calculate your ARV and rehab expenses to gauge whether it’s possible to recover your capital when you refinance. As discussed, Greene recommends aiming for a 75% LTV, a loan worth 75% of the property value. With this rate, if your combined purchase and rehab costs are 75% of your ARV, then you’ll recover your entire investment when you refinance (for this BRRRR method’s example case: $120,000).
Estimating your ARV depends on the type of property you’re buying:
- Single-family home values are based on the recent sales prices of comps, or comparable properties in the area. To analyze comps, Greene suggests consulting local real estate agents, appraisers, and websites like Zillow and Realtor.com. (Shortform note: Comps should be similar in style, size, condition, age, and bedroom and bathroom count.)
- Multifamily property values are based on their potential profitability through rents. To determine how much you can charge for rent, talk to local professionals (like investors and property managers) and use rent calculators on websites like Rentometer.com and Biggerpockets.com. (Shortform note: To calculate the market value, divide the capitalization rate (cap rate) by the net operating income (NOI). The cap rate is the average of similar properties’ cap rates in the area—and that is the purchase price divided by the NOI. To get the NOI, total future rents and other income and subtract all expenses—including taxes, insurance, maintenance, and property management.)
Second, estimate how much you can charge for rent to calculate whether your property will cash-flow positively, meaning your rental income will more than cover your mortgage and expenses. As a general rule, Greene says that if you can rent the property for at least 1% of the purchase price, you’ll probably have a positive cash flow.
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Like what you just read? Read the rest of the world's best book summary and analysis of David Greene's "Buy, Rehab, Rent, Refinance, Repeat" at Shortform .
Here's what you'll find in our full Buy, Rehab, Rent, Refinance, Repeat summary :
- An explanation of the BRRRR real estate investment method
- How to use the BRRRR method to produce consistent, passive income
- Why you should assemble a "Core Four" team rather than working alone
