The first letter in the BRRRR method is ‘B,’ which stands for buy. When searching through listings, keep in mind that this phase serves as the critical point and will determine the outcome of an investment. There is a complicated intersection between making sure a property represents a sound investment deal and promising to perform well as a rental property. This will require an intensive deal analysis, which includes calculating the cost of renovations, estimating monthly rental expenses, and confirming that the resulting rental income will provide a sufficient profit margin. Ensuring the strong performance of a rental property may include researching the best rental markets and making sure that the purchase price provides enough of a buffer zone to allow for renovation costs.

At the most basic level, landlords must identify how to make their rental properties livable and functional. Once these requirements are satisfied, updates or renovations that will add value to a property (and thus justifying increased rental rates) may be considered. On the other hand, however, investors must be careful not to make any excessive upgrades that will cost more than what can be produced through rental income. Representing the first ‘R’ out of four, the rehab phase of the BRRRR strategy requires an in-depth cost- benefit analysis every step of the way. Investors are advised to only select home improvement projects that will provide a high return on investment.

Once the property’s rehabilitation phase is complete, the investor can then execute the rental phase of the process. This might entail screening and selecting tenants, managing turnover, and responding to maintenance and repair requests. After a certain amount of time, an investor will typically figure out whether their practice of minding due diligence was satisfactory. Possible things that can go wrong include vacancies, bad tenants, or rental expenses that exceed the income produced. All these possible outcomes can quickly drive a property underwater, increasing the risk of foreclosure. This is not intended to scare investors away from becoming a landlord or from exercising the BRRRR strategy, but merely to emphasize the importance of properly running the numbers before making any investment decision.

Once your property has been effectively rehabbed and rented, you can start devising a plan on how to refinance it. Some banks will offer a cash-out refinance, while others will only offer to pay off outstanding debt; of these two options, you will want to select the former. You will also want to make note of the required ‘seasoning period,’ which indicates how long you must own a property before the lender considers refinancing against the appraised value of the property. Although you may encounter some banks that are unwilling to refinance single-family rental properties, investors can generally tap into their networks to find a lender that fits their refinancing needs.

Finally, the investor can use the cash out refinance from their first rental property to fund the acquisition and rehabilitation of their second. A cash-out refinance offers additional advantages, such as interest rates that are often favorable compared to other sources of capital, tax benefits, and having control over your financial timeline. Facing quite the learning curve, an investor is sure to encounter some difficulties and mistakes from their very first BRRRR cycle. However, they can apply their experience and newly-acquired wisdom when tackling their second, third, or fourth property, and so on.