Using the BRRRR
Strategy to build a
Portfolio
Wins & losses from my last year in business
By Aaron Steeves
What we will cover
Raise your hand if you are an investor agent 🖐
Have you heard of the BRRRR strategy?(If social media algorithms haven’t shoved it in your face yet, pay attention after today…they’re listening…)
In theory, the BRRRR strategy is a method of recycling the same funds through multiple projects
AI image generator interpretation of that statement…
The BRRRR Process
(B) Buy
Find a distressed property that you can purchase below market value. This could be a foreclosure, a short sale, an estate sale, or a property that needs repairs.
(R-1) Renovate
Rehab the property to increase its value. This could involve cosmetic repairs, such as painting and landscaping, or major renovations, such as replacing the roof or plumbing.
(R-4) Repeat
Use the cash-out refinance funds to acquire another distressed property and repeat the process.
(R-2) Rent
Find a tenant for the property and start generating rental income. You will need to screen tenants, create a lease agreement, and manage the property.
(R-3) Refinance
Once you have stabilized the property and have rental income coming in, refinance the property to pull out your initial investment. This will enable you to recoup your funds and reinvest them in another property.
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Case Study 1
21 Spring Street, Fitchburg MA
Contract Sales Price | $142,000.00 |
Construction Hold Back | $74,000.00 |
Other Closing Costs | $8,007.88 |
GROSS AMOUNT DUE | $224,007.88 |
| |
Principal Loan | $196,400.00 |
Down Payment | $27,607.88 |
| $224,007.88 |
Post construction payoff amount $162,551.05
(Why is this less than the principal Loan of $196K…0% APR credit cards for material purchases…a story for another day)
Appraisal = $289,784
The cash due borrower is my deposit coming back to me. In reality, I spent roughly $11,000 more on renovation costs on 0% APR credit cards making my total out of pocket on this project about $12K. Not a perfect BRRRR, but it was my first go it at…
Attempt no. 1
Loan Payoff | $ 162,825.03 |
Closing Costs | $ 13,983.92 |
GROSS AMOUNT DUE | $ 176,808.95 |
| |
Refinanced Loan (70% LTV) | $ 202,849.00 |
Cash due Borrower | $ (26,040.05) |
| $ 176,808.95 |
Base Rent | $2,200.00 |
Pet Fee | $65.00 |
Laundry Rental | $25.00 |
GOI | $2,290.00 |
Mortgage | $1,727.26 |
NOI | $562.74 |
Case Study 2
45 Pumpkin Lane, Charlton MA
Contract Sales Price | $ 260,000.00 |
Construction Hold Back | $ 70,000.00 |
Other Closing Costs | $ 13,960.76 |
GROSS AMOUNT DUE | $ 343,960.76 |
| |
Principal Loan | $ 304,450.00 |
Down Payment | $ 39,510.76 |
| $ 343,960.76 |
Appraisal = $431,000.00
On attempt no. 2, I ended up about $24,527.16 out of pocket on the overall project & acquisition
Attempt no. 2
Loan Payoff | $ 298,453.19 |
Closing Costs | $ 10,363.21 |
Total Refi Costs | $ 308,816.40 |
| |
Refinanced Loan (75%LTV) | $ 323,250.00 |
Appraisal Fee | $ (550.00) |
Total Refi Costs | $ 308,816.40 |
Gross amount due buyer | $ 14,983.60 |
Rent | $ 2,975.00 |
Mortgage | $ 2,427.94 |
NOI | $ 547.06 |
Case Study 3
82 Congress Street, Fitchburg MA
Contract Sales Price | $ 85,000.00 |
Construction Hold Back | $ 106,000.00 |
Other Closing Costs | $ 11,726.25 |
GROSS AMOUNT DUE | $ 202,726.25 |
| |
Principal Loan | $ 171,900.00 |
Appraisal | $ 450.00 |
Deposit | $ 1,500.00 |
Down Payment | $ 28,876.25 |
| $ 202,726.25 |
Appraised Value = $334,000
On attempt no. 3 I got it right. I partnered with an investor who covered the initial down payment in exchange for my company managing the entire project. At closing, I was able to repay the investor a 33% CoC return, take a small profit myself and take ownership of a cash flowing asset. Net result +$$$ + 🏠
Success!!!
Loan Payoff | $ 172,393.92 |
Closing Costs | $ 7,972.90 |
GROSS AMOUNT DUE | $ 180,366.82 |
| |
| |
Refinaced Loan | $ 250,500.00 |
Gross Amount Due | $ 70,133.18 |
| $ 180,366.82 |
Rent | $ 2,500.00 |
Mortgage | $ 1,823.22 |
NOI | $ 676.78 |
Summary - BRRRR By the numbers
| Total Loan | Appraised Value | Equity | Net Cash out of Pocket |
82 Congress Street | $ 250,500.00 | $ 334,000.00 | $ 83,500.00 | $ (10,000.00) |
45 Pumpkin Lane | $ 323,250.00 | $ 431,000.00 | $ 107,750.00 | $ 24,527.16 |
21 Spring Street | $ 202,849.00 | $ 289,784.29 | $ 86,935.29 | $ 12,000.00 |
| $ 776,599.00 | $ 1,054,784.29 | $ 278,185.29 | $ 26,527.16 |
| | | | |
| | | | |
| Mortgage & Expense | Rent | Monthly NOI | |
82 Congress Street | $ 1,823.22 | $ 2,500.00 | $ 676.78 | |
45 Pumpkin Lane | $ 2,427.94 | $ 2,975.00 | $ 547.06 | |
21 Spring Street | $ 1,727.26 | $ 2,290.00 | $ 562.74 | |
| $ 5,978.42 | $ 7,765.00 | $ 1,786.58 | |
Top 3 Reasons I like BRRRR
Top 4 Challenges & Risks
In conclusion, the BRRRR investment strategy is a powerful approach for real estate investors looking to acquire and scale their rental portfolio with minimal cash out of pocket. By following the five phases of the strategy and being aware of the risks and challenges involved, you can build a successful doing your first deal. Just remember to consider the following:
👉 Do extensive due diligence when identifying properties for investment
👉 Budget carefully and be prepared for unexpected expenses during the renovation process
👉 Screen tenants carefully to ensure that they're reliable and responsible
👉 Keep an eye on interest rates and be prepared to adjust your strategy if necessary
OK…WRRRRAP IT UP BUDDY (see what I did there)
Questions?
THANK YOU! (audience applause)