The BRRRR Method means “Buy, Rehab/reno, Rent, Refinance, Repeat,” and describes a strategy and framework used by investors who wish to build passive income over time.
Check out this video where Blandon describes the strategy in more detail:
This is a video from the Property Formula Workshop. There are several unlocked for you and included in this course. To get access to all videos and spreadsheet calculators please apply for the workshop.
One of the most popular platforms globally for learning about property investment is the site and podcast at biggerpockets.com – hundreds of free episodes, with success stories and some failures, with forums for learning more about the basics of property investing.
The site is American which does limit you a little bit, but the principles are the same. BRRRR comes from Bigger Pockets. On the Property Formula Workshop Course, we go over lots of case studies from our clients and other successful investors who have used BRRRR to get the wheels of equity growth turning faster.
Ideally, when you buy an investment property, your aim will be to maximise your cash on cash return and to cycle your initial cash/equity out of the deal so you can buy more properties. This is equity recycling or deposit recycling. If you do not plan to invest this way, your ability to keep buying properties is severely impacted and you will stall. Instead of buying 5-10 properties, you may only get 2-3.
If you can get positive cash flow on your investment, without leaving any of your original money in the deal, you have created a cash producing asset for yourself without limiting your future options much. We will cover ‘mortgage coverage’ in later emails. Understanding what it takes to buy more properties AFTER you buy the next property, means you understand the rules of the game with lenders.
The majority of property investors get stuck on 2-3 properties and they cannot buy more because their equity is locked into their portfolio and their yields (cash flow) is not strong enough to enable further borrowing. ‘Yield’ is the key to keep borrowing.
Check out Blandon’s video with over 16,000 views about using some of these strategies.
If you enjoy learning via video and from Blandon. He has created a three-part video masterclass series, one video for each stage of the Mortgage Lifecycle, each class is slightly over an hour. This is the next step after completing the 21 Day course. But you can also enjoy them simultaneously. Every class includes an on-demand video, a slide deck and a custom spreadsheet you can use to lock down your numbers. Register online here.
By reverse engineering from the beginning of the investment planning, we can choose properties that allow you to cycle out equity and enable you to keep buying, playing the long game instead of just thinking about the next property. When looking at listings there should be obvious upside in the form of repairs, renovations, or a proper discount.
The process is simple (not to say that it is easy) – buy well, renovate on a strict budget and add more equity value than dollars spent, rent the property out to good tenants at a high yield, and refinance your equity out at a new higher valuation. Then buy again.
To successfully recycle your deposit (or the majority of it) you will need to get a good price on the purchase. You simply cannot expect to get much of a win if you pay ‘full price’ for the property. This is where a keen eye and quick wit is required to get a property under contract. You can move fast when a newly listed property appears for a price that is well below your valuation because the agent or vendor did not understand the market opportunity you see.
You can also negotiate much harder on price with properties that have been for sale for a long time. Understanding the process of getting a property under contract will play a major role in your success. We will cover that next week.
You might have to put 20 offers on the table across lots of different properties and this might take 3-24 months for something to stick (hopefully not that long but it’s what it sometimes takes). Blandon bought a Manurewa property that had been listed for a long time, and after the settlement, the valuation came in just shy of $100k above the purchase price. This is because he knew what to look for and how to get the property under contract at the right price/time.
If you pay too much for a property, there is very little you can do to quickly recover from surprises and problems. You just have to wait it out or take a loss.
On the flip side though, for those of you who bought property 5-10 years ago, think about the price you paid and add $50,000. At the time you may have been thinking about how stupid it was to pay such a high price, but now it is likely (especially if you live in AKL) that the value is $300-500k more than you paid, sometimes even $500k-$1mn more.
The capital gains do add up quickly and by not investing you do risk missing out on the growth. This is not to say it’s ok to overpay but to reassure you that you can recover if you do.
The fastest way to pay off an existing mortgage without changing careers is often to increase your income through property investing. This extra money and the capital gains across more properties will help reduce your debt burdens faster than if you just plug away using your income to pay off the mortgage. With interest rates so low, properties will produce surplus cash that you can deploy to either grow the portfolio or pay down debts.
When planning your renovations, assess what is the most bang for the buck. Some houses might easily enjoy $100,000 of improvements like a new bathroom, kitchen, garage, roof, expanding the bedrooms, demolishing some walls, new carpet, paints, etc etc but only generate you an extra $80,000-120,000 in value. What is the point in that?
Letting the spreadsheets and numbers do the work for you, the changes made with small cosmetic improvements like new carpet, or switching old for new in the kitchen, might cost $5,000 – 25,000 but add $50,000 to the valuation. This makes far more sense and protects your position. You can in most cases borrow all the money for the renovations (LVR and income play a role).
Some property coaches will encourage you to look for properties where expanding the kitchen into a more modern open plan setting or changing one small area in the house into a bigger area that allows for an extra bedroom, therefore, increasing the value AND the rental income, will increase your equity and borrowing power (higher yield on the property creates higher borrowing power).
Houses that are outdated, falling apart, or with renovations that are half-finished – you may spot an opportunity to get your hands dirty and finish things off cheap or to get someone to do it for you (lots of people run out of time, energy or money to do it themselves). Get accurate quotes from people you trust and let the numbers guide you.
Working with a mortgage adviser will help you get the purchase settled in a streamlined way that allows you to have a buffer amount of money for the renovations, then get the top up or refinance done later in a way that sets you up to keep growing your portfolio.
Your journey to financial freedom will typically follow a path consisting of 3 Mortgage Lifecycle stages.
Stage 1: Reduction. Main goal: if investing – building $120,000+ of usable equity asap, or getting your home mortgage-free quickly, often in 10 years or less.
Stage 2: Expansion. Main goal: building your first $70,000 of annual rental income while refining your strategy for recycling equity, repeat, repeat, repeat…
Stage 3: Optimisation. Main goal: increase passive income to replace wage income, minimise time requirements, orchestrate big wins.
To take control over your portfolio purchase the relevant masterclass, or purchase all three for a special price of just $37 – this special offer appears when you check out.
Included in Mortgage Lifecycle Masterclass Series:
P.S. tomorrow we will go over House Hacking, Home and Income, Minor Dwellings, and more.