The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) real estate investment strategy is a popular approach that involves finding a mispriced/distressed property, fixing it up, renting it out, and then using a Cash-Out Refi to pull cash out towards another property purchase.
The mindset shift focuses on 2 things: finding a mispriced property, “forcing” appreciation, and then pulling cash out of the increased valuation in the form of a Cash-out refinance.
Yes…this is achievable as a Foreign National, Non-U.S. Citizen or U.S. Expat living overseas, AND it can all be done remotely!
America Mortgages and its parent company, Global Mortgage Group, are the world’s ONLY place you can obtain a U.S. mortgage outside the U.S.
Speak to our Loan Officers to learn how an overseas investor can use leverage to lower your cash investment and increase your returns for your U.S. real estate investments!
Don’t believe us?
Watch a recent interview with one of our clients, a young Singapore-based couple who used our loans for the BRRRR Method and built a 11-unit cash-flowing rental portfolio in only 3 years - all remotely from Singapore. They have recently quit their jobs and are now full-time U.S. real estate investors!
Here is how it works.
BUY
The key to the BRRRR method is purchasing a mispriced property. There is a fine line between distressed and mispriced. The more distressed, the cheaper it will be, so there is a higher potential for “forced appreciation,” but you will have to spend more on refurbishment.
Financing the initial purchase can be tricky since all lenders will require an appraisal on the property, which needs to meet certain criteria. A distressed property will unlikely meet this criteria, but a mispriced property may.
One option is to use a Short-term Bridging Loan to purchase the property and then use a traditional loan to refinance. Bridging loans are based on the asset value of the property and are more flexible in terms and conditions. This is a common approach to the BRRRR method.
Another option is, of course, to pay for the home with cash and then refinance.
REHAB
This takes a little expertise, but costs of renovations and materials are very inexpensive in the U.S., and it is fairly easy to get everything at Home Depot, IKEA, etc. You will need to find a good contractor in the neighborhood, but generally speaking, most of the REHAB should be cosmetic and nothing foundational. That includes painting, flooring, changing bathrooms, kitchens, etc.
The key to the BRRRR strategy is calculating the After-repair Value since that will be the value that you refinance once the rehab is complete.
A common rule of thumb is the 70/30 rule. If the ARV value is $300,000, you should not pay more than 70% or $210,000.
RENT
Finding rental comps is fairly easy - even if it's for short-term rentals (Airbnb, VRBO, etc.). This does require some work, but Zillow and AirDNA are good places to start your research.
Choosing tenants requires a little common sense, but a simple checklist would be:
- Good credit score (if they don’t pay their banks, they won't pay you on time)
- A stable job with a steady income (name of company, position, how long they have been there, etc.)
- No criminal record
- Positive references
- Young family (families don’t normally have time to host parties)
I personally use the 1% rule in real estate investing, and only in the U.S. can you find these deals. Here is how it works - multiply the purchase price of the property (ARV) by 1% to determine the base level of rent. In this case, financing will need to be less than 1%. More later.
REFINANCE
Here is the big mindset shift - to use a Cash-out refinance towards the next purchase, which often means your net initial outlay is ZERO!
You can qualify for our AM Rental Coverage Plus loan program by using the rental income of the property to cover the mortgage costs.
REPEAT
The final step in the BRRRR method is to repeat the steps again. There is no rush here, and it’s important to learn from the entire process.
Pros and Cons of the BRRRR Method
Pros - With a limited cash outlay, you can start to build a portfolio of cash-generating assets, “force” equity appreciation, and use debt to your advantage! Remember, debt is not taxed in the U.S.!
Cons - This takes work, but we think the satisfaction of seeing your assets “Pay You” is worth the effort. Work includes research, building a team on the ground, finding the properties, and maximizing cash flow, to name a few.
Example (for illustration purposes)
Home price: $200,000
Nearby comparables: $250,000 - $300,000
Renovation costs: $30,000
After-repair value: $310,000
After-repair monthly rent: $2,500
Scenario 1 - All cash payment
- Purchase price = $200,000 + Rehab $30,000 = $230,000 cash outlay
- After-repair value = $310,000
- Cash-out refinance using AM Rental Coverage Plus = 70% x $310,000 = $217,000
- Monthly mortgage = $1,700
- Gross monthly rental income = $2,500
- Net rental income = $800
- Now, you have $217,000 towards your next investment.
In this scenario, you spent $230,000, and then borrowed $217,000, which means your total cash outlay was $13,000.
- With $13,000 spent, you are now earning $800 monthly!
- After 12 months, you will have earned $9,600 in passive income (Yes, 74% return!)
- After 16 months, the property would have paid back your entire investment!
Scenario 2 - Bridging loan to purchase
- Purchase price = $200,000
- Bridging loan = 70% loan to value x $200,000 = $140,000 loan = $60,000 down payment
- Bridging loan term = 12 months @ 12% per annum, interest-only
- Total Bridging loan interest = $16,800
- Down Payment = $60,000
- Rehab = $30,000
- Total initial outlay = $90,000
- After-repair value = $310,000
- Cash-out refinance using AM Rental Coverage Plus = 70% x $310,000 = $217,000
- Monthly mortgage = $1,700
- Gross monthly rental income = $2,500
- Net rental income = $800
- Pay back Bridging Loan = $217,000 - $140,000 = $77,000
- Subtract Bridging loan interest = $77,000 - $16,800 = $60,200
- Now you have $60,200 towards your next investment
In this scenario, you spent $90,000, then borrowed $60,200, which means your total cash outlay was $29,800
- With $29,800 spent, you are now earning $800 monthly!
- After 12 months, you will have earned $9,600 in passive income (Yes, 30% return!)
It gets better!
In both scenarios - after 12 months, you can renegotiate a higher rent once the lease term ends and refinance the loan to a lower 30-year fixed-rate mortgage at a higher property value!
Money in GOES UP + Money out GOES DOWN = MORE MONEY!
There are strategies for finding the best states and cities to invest in. If you want to learn how to identify which city to start your BRRRR Method journey, please feel free to contact us!
In conclusion, the BRRRR method offers a great opportunity for investors from overseas to invest in U.S. real estate. America Mortgages, along with Global Mortgage Group, is your go-to for getting U.S. mortgages abroad. With success stories like the couple who built a rental portfolio from afar, it's clear this strategy works. For those keen on making the most of their investments, our team is here to help. Reach out today at [email protected] to learn more about how the BRRRR method can boost your real estate journey.
