BRRRR Method

No, it's not a motorcycle sound effect.

BRRRR stands for Buy, Renovate, Rent, Refinance, Repeat. This can be a great way to generate wealth in property but it does require some work. Let's break down how it works: 

1. Buy - You will need to purchase a property (obviously). Ideally, you should purchase an old rundown property where there is room for improvement. 
2. Renovate - You will need to do some extensive work on the property. This requires more capital from your side to carry out the works. You may decide to make structural and aesthetical improvements to the property. Also, make sure its safe to live in. 
3. Rent - Once the renovations are complete - you can rent out the property for a higher rent than before. As the property has been renovated and modernised, rental income will be higher. 
4. Refinance - You can go to the bank and refinance your newly renovated property. If you have done the process correctly, the value of the property should have increased compared to what you bought it for. When you refinance, you can opt for a cash-out refinance (i.e. draw out equity)
5. Repeat - Once you have completed the refinance process and drawn out equity, you can use the funds to start the process again. 

Tips for each step: 

Buy

When you buy the property, make sure you are buying it under market value. Also it is essential to make sure that there is plenty of room for improvement. Its also a good idea to get an inspection report completed for the property to ensure that there are no significant damages which are expensive to repair. 

Also ask real estate agents for a rental appraisal once the property has been renovated. 

Renovate

When renovating, ensure that you are not overdoing it. It's not necessary to get Italian tiles when upgrading flooring. Do some calculations and make sure to get 3 times more than what you're putting in. 

For example - if the renovation is costing you $30,000. Make sure that the added value (or the expected valuation increase from the bank after renovation) is $90,000. Research similar sized properties or even newer properties to get a rough idea. 

Rent

Approach local real estate agents and compare their property management fees and also check their reviews. You will need to start looking for tenants before moving to the next step. Once the property has been renovated, rent it out as soon as you can. 

Refinance

Approach your current lender, or another lender to refinance your newly renovated property. It is important to engage a mortgage broker for this step and obviously go for the highest valuation and best interest rate for your strategy. You may find that the lender with the highest valuation might not have the best interest rate. In this situation, it's your call - do you want equity or cashflow? 

Make sure to opt for a cash-out refinance so you can use the funds for the next step. When you do this, the extra added value will be transfered to your nominated bank account. Mortgage broker should help with this. 

Repeat 

Well this step is simple - just do everything again and keep going until you're bored or had enough. 

Risks

There are several risks to this method. It takes patience and effort to manufacture equity like this. Especially in 2023 when construction costs are increasing rapidly. You may find that your calculations to renovate the property from last month are no longer valid because the cost of materials has dramatically increased. 

Another downside is that - while the property is being renovated, you will not recieve any rental income. You will need to pay down the mortgage from your pocket without any rent. If there are any delays in renovations, this period will extend and this might become frustrating. 

Conclusion

The largest benefit of the BRRRR method is that you are manufacturing equity. You are making an existing property more modern, more liveable and generally improving it in every way. If you do this correctly, you can expect to make some money out of this. 

Usually in real estate, the best time is to buy yesterday. However, with this strategy you might need to consider some external factors before you take the plunge. Your calculations will need to be spot on. If construction costs keep rising, then all your effort might be for not much gain. 

Here's the disclaimer -  This isn't professional advice. Properties are a big investment and depend on your circumstances - please seek professional advice before making your decisions.