By Mark Burch, Temple View Capital
There are countless ways for your clients' to create passive income create opportunities. When done correctly, the BRRRR Method, or ‘Buy, Renovate, Rent, Refinance, and Repeat,’ is a leading technique for your borrowers who are keen on using one investment property to fund another.
Unlike the average fix-and-hold strategy, the BRRRR Method would offer your clients' one final step to fulfill after successfully renting out a property, and that’s to refinance it, converting their equity into cash. When coupling that equity with loans offered by private lenders like Temple View Capital Funding, LP (“TVC Funding”), they can then put their money back out into the market and begin the process again.
So, how does BRRRR work?
The strategy only works if investors purchase a distressed property needing repairs. That means it could be difficult to obtain a traditional mortgage through a bank. That’s when private lenders come in.
As with many other comparable investment projects, particularly fix-and-flip or fix-and-hold projects, it’s important to calculate the after repair value (ARV) to ensure the property aligns with the value of other similar ones in the area.
Focus first on the repairs that will bring the building up to code. After those are done, being strategic with the next updates is important. Identify the improvements that are sure to increase the property value without breaking the budget. That means focusing on key spaces within the house—the kitchen and bathrooms, for example—as well as curb appeal.
Lenders typically don’t refinance a property before it’s occupied by tenants, therefore finding reliable renters after the rehab stage is completed is important. While screening for qualified tenants can feel like a tedious process, it’s a crucial step in successfully renting out the property. Reviewing things like credit reports, references, and basic background checks can be the difference-maker between securing a long-term renter vs. experiencing ongoing turnover.
Determining the rent is just as important as securing tenants. Investors will want a monthly number that is both fair to the renter while still producing a positive cash flow.
The BRRR Method allows investors to do a cash-out refinance so that they can use the money to purchase yet another distressed property and repeat the process. Not only do investors need to find a lender that offers cash-out refinancing, but they also have to be ready to meet the loan qualifications.
With the right financial partner (like TVC Funding), your clients could have loans available for both BRRRR investments, as well as short term rental BRRRRs to support vacation and Airbnb properties. For more information on TVC Funding loan terms, contact us today.