What Is The BRRRR Method In Real Estate
⚠️ Disclaimer: This article is for informational purposes only and is not financial or investment advice. Real estate investing carries risks, and results may vary. Always do your own research and consult professionals before making investment decisions.
If you want to be a property investor in 2025, you need to know what BRRRR method in Real estate is and how it works. So, BRRRR stands for Buy, Renovate, Refinance, Rent, and Repeat.
Now, this is nothing like the traditional way of buying property. In this article, I am going to explain how to structure a BRRRR investment. Why is it really good? And why do rich people buy properties this way? But also, what are the pros and cons with the BRRRR method in real estate and some caveats and issues that you need to be aware of?
If you want to be a property investor, first let’s look at the typical way of buying a house.
The Traditional Way to Buy a House
I’m sure this is the approach you’re familiar with. Let’s say a $200,000 property. How would you typically go about buying a $200,000 property?
The Buy-to-Let Strategy
What you do is you save up maybe $50,000, put it down, and get a mortgage for the remaining difference, which would be $150,000. Then your mortgage payment might be $500 a month, but your rent would be $1,000 a month. You’re making a nice passive income from your $50,000 investment, while also waiting for the property to appreciate in value. Now that’s a good strategy. It’s called Buy-to-Let.
The Limitation of Buy-to-Let
The only problem with Buy-to-Let is that you have to save $50,000 and put it down, and then you have to save another $50,000 to buy your second property, and then another $50,000, and then another $50,000. If you want to buy 10 rental properties in Florida, you will need to save half a million, which most people will not be able to physically do. Since the average salary might be $50,000 a year, depending on where you are in the country, how do you save $50,000?
How BRRRR Method Works In Real Estate
So, buy, renovate, refinance, rent, repeat – how does it work?
This is where you buy a rental property, but you buy one that is finished. So, instead of buying a property for $200,000, you can buy a property that is finished and needs to spend $50,000 on renovations. It may have structural problems, damp, or dry rot.
You buy it for $100,000, but you don’t buy it with a mortgage. You buy it with cash because it is an uninhabitable house and pay zero Stamp Duty tax, which is a saving there too.
Now, you may be wondering how you get the cash – we’ll get there. You then spend $50,000 renovating it and making it look beautiful. Now you’ve increased the price, and it’s worth $200,000.
Refinancing
That’s when you refinance. That’s the buy, renovate, refinance part. You now get a mortgage of 75% of the new price. The new price is $200,000, so you’re now getting $150,000 back in your pocket, tax-free, because they can’t tax you on the loan.
This means your $100,000 purchase price and your $50,000 renovation are now coming back to you. You can go and invest in another rental property. It’s a way of recycling your money.
Instead of buying a house and waiting for the price to go up, you’re forcing the value of the property up by renovating it.
Getting the Initial Cash
Now, how do you get the $150,000 in the first place? There are a number of companies that will offer something called a bridging loan.
A bridging loan is where you get a loan that bridges the gap between buying a house and getting a mortgage. So instead of getting a mortgage at the start, you get a mortgage at the end and you use it to pay off the bridging loan.
Advantages of BRRRR
The good thing about BRRRR method in rental properties is that if you only have $50,000, as long as you find a bridging company to work with, you can buy a house, increase the price, refinance it, and now you have your money back. So now you go again and again. You can keep recycling your money and build your portfolio using the same pot of money.
Tax Advantages of BRRRR
Another good thing is that they can’t tax you. There’s no stamp duty tax here because it’s unoccupied. When you refinance, they can’t tax you because it’s not profitable.
If you bought a house for $100,000, spent $50,000 on it, and then sold it, you’ve now made a profit of $50,000, and if it’s in a company you’ll have to pay capital gains tax or corporation tax. But if you refinance, your $50,000 profit is held as a deposit, and they can’t tax you on the loan.
Supporting the Economy
Another good thing is that you’re helping the economy. You’re not competing with first-time buyers. You’re just buying run-down houses and fixing them up.
Reduced Maintenance Issues
Also, from a maintenance perspective, you’re going to be a lot better off because you’ve just spent $50,000 renovating it – bringing it back to brick, new kitchen, new bathroom. You’ll now have far fewer maintenance issues with the property
Downsides and Risks
I like this strategy, but what are the downsides?
Number one, the downside is finding these deals. I know there will be people who say, “Oh, where are you going to find a house for $100,000? These deals don’t exist.” That’s not true. They do exist. You can buy them at auction, from motivated sellers, or even from agents. They do exist, but it will take time to find a deal like that.
Access to Bridging Finance
Another thing is that you might find a deal like that, but you might not be able to get bridging finance because a lot of bridging companies say you need experience, you need to be in business for X years.
Renovation Risks
Another risk is that the renovation can go over budget, and this is quite common. You think the renovation is going to be $50,000, but then as soon as you start pulling back the walls and they look much wetter than you thought, the renovation can end. Now you need more money, and the contract doesn’t come through. This can be an absolute nightmare.
So when you’re doing this, make sure you get independent building surveys, get builder quotes, and do it properly. This should be treated seriously. This is real business.
Avoiding Tax and Saving Challenges
It’s very easy to just buy houses that are already in good condition, but then you’ll be taxed and need to keep saving $50,000 from your job or business. This makes it more expensive and less attractive.
Scalability and Effort
The BRRRR method in real estate is much more scalable, but it involves a bit more work, and you’ll need to stay with the builders on it.
Learning from Others
If you wanted to be a driving instructor, you’d need to learn how to drive and get lessons first. If you wanted to be an engineer, you’d go to university or college to learn to be an engineer. In the same way, if you want to be a property investor, it makes sense to learn from other people’s mistakes rather than learning from your own mistakes.
