The BRRRR Method of Real Estate Investing in Canada
Check out our guide to the Buy, Rehab, Rent, Refinance and Repeat (BRRRR) real estate investing strategy.
By Emily Southey | 11 minute read
Interested in the BRRRR method of real estate investing? Then you’re in luck because we cover this topic in great detail below. From how to get started to weighing the risks and benefits of the BRRRR method, keep scrolling to learn more.
–
Breaking Down the BRRRR Method
First, BRRRR is an acronym that stands for Buy, Rehab, Rent, Refinance, and Repeat. It is a popular real estate investing strategy and is best suited to investment properties. This strategy can be applied to both commercial and residential real estate and can be an effective method of accumulating wealth through real estate investments.
–
The typical process of the BRRRR method is as follows: An investor purchases a property, renovates (or rehabilitates) it, rents it out to a tenant, refinances the loan on the property, and then repeats the entire process with a new property. To see success with this strategy, investors must purchase properties that appreciate in value. This way, they can refinance the rental property mortgage down the line and use the extra cash to put a down payment on another property. Ultimately, the goal of the BRRRR method is to purchase investment properties without using much of your own money. We break down the five components of the BRRRR method below:
–
- Buy: The first step is to find a property that meets your investment goals. Generally speaking, it’s best to purchase a property in an established neighbourhood that is listed under market value, even if it requires a few repairs. Just make sure to do your due diligence by hiring a home inspector to assess the property before the purchase is finalized.
- Rehab: Once the sale has gone through, it’s time to repair and renovate the property. This is a vital step if you want to increase the value of the property and maximize profits.
- Rent: After the repairs and updates are complete, the next step is to find a tenant and start collecting rent. Ideally, the rent you collect should be enough to cover your mortgage payments, as well as other property expenses, such as taxes. You should aim to have a positive cash flow from this point on.
- Refinance: The fourth step of the BRRRR method is to refinance. Now is the time to use the rental income and property value appreciation (thanks to your renovations) to refinance your mortgage loan. With this step, the goal is to use your home equity as cash equal to the value of the property (less the mortgage amount).
- Repeat: Finally, it’s time to start all over again, which means going back to step one and finding a new property to buy.
–
Benefits of the BRRRR Method
To decide if the BRRRR method of real estate investing is right for you, we outline the benefits below.
–
Portfolio growth
One of the first benefits of the BRRRR method is that it can help an investor quickly grow their portfolio. Since the crux of the strategy is to renovate and rent out properties, it allows investors to earn income each month that they can turn around and use to buy more properties.
“The Buy, Rehab, Rent, Refinance and Repeat (BRRRR) strategy can be applied to both commercial and residential real estate and can be an effective method of accumulating wealth through real estate investments.”
Cash flow through rental income
Of course, one of the main pros of the BRRRR method is that thanks to rental income, it can generate a positive cash flow. When you find a tenant, you can charge them rent. If you’ve chosen a property in a good location with a low vacancy rate and high average rents, you should be able to collect a sizable chunk of money from your tenant (especially if you recently renovated it to further increase its value). While the majority of this rental income should be used to cover property expenses, like maintenance and mortgage payments, the rest will go right into your pocket, leaving you with extra cash each month.
–
Flexibility
Another benefit of the BRRRR strategy is the flexibility that it offers investors. As mentioned, the BRRRR method can be used with both residential and commercial properties, ranging from condos and single-family homes to warehouses, hotels, and office buildings. Plus, it can be done through traditional financing or private lenders.
–
Builds equity
Building equity is another advantage of the BRRRR method of real estate investing. Since an investor is choosing a property based on its rehab potential, it’s easy to build up equity. When you renovate a property, you often increase its value, which translates to more equity to borrow against when you choose to refinance or sell.
–
Greater potential for appreciation
Since the goal of the BRRRR method is to buy properties below market value and subsequently add value through renovations, your potential for appreciation is greater.
Risks of the BRRRR Method
As with any investment method, there are risks that come with the BRRRR strategy. We break down these risks below.
–
Overleveraging
One of the main risks of the BRRRR method is that it can lead to overleveraging. Since the investor is dependent on refinancing to purchase another property, you may have few options if something goes wrong. For example, a downturn in the market, a drop in home prices, decreasing rents, or high vacancy rates could cause major problems, leaving you with an expensive mortgage. Ultimately, the BRRRR method involves a high level of risk owing to the amount of debt an investor takes on.
–
Money tied up in your investment property
A second disadvantage of the BRRRR method is that your money could be tied up for long periods of time. The upfront costs associated with buying an investment property are significant, accounting for both the down payment and the cost of repairs. It’s also not uncommon for the cost of renovations to quickly increase. You will need to have enough capital to cover these costs, and it could be months before the renovations are complete and you start generating rental income. During this time your cash will be tied up, and if you are already stretched thin, an emergency or market downturn could have major consequences.
–
Finding the right rental property can be difficult
Finding the right rental property is no easy task, and this is true using any investment method, including BRRRR. The goal is to find a property selling for below market value that still has potential and is located in a good neighbourhood with a low vacancy rate. Finding a property like this takes time, which leads us to our next point.
–
Time commitment
Another drawback of the BRRRR method is the amount of time it requires. This method is very hands-on, which means it is also time-consuming. From searching for the right property and overseeing renovations to finding and vetting prospective tenants, negotiating the refinancing, and eventually selling the property, the BRRRR strategy requires a serious time commitment.
–
Knowledge of the market is required
Finally, investors who use the BRRRR method should ideally possess extensive knowledge of the market. This is usually needed to have success with this strategy, as understanding market conditions is vital to choosing the right property. Going back to the time commitment issue mentioned above, investors must be willing to devote their time to researching the market and real estate investing at large before jumping in with the BRRRR method.
How It Works: Getting Started With the BRRRR Method of Real Estate Investing
To help you understand exactly how the BRRRR method works, check out this detailed guide.
–
1. Buy an investment property below market value
The first step of the BRRRR method is to buy an investment property below market value. This could mean buying a fixer-upper, buying a home at auction, or simply researching the market and finding a property with a low listing price. Finding a property that works with the BRRRR strategy requires extensive knowledge of the local real estate market. Therefore, if you don’t already possess this knowledge, you will need to do some research and enlist the help of a real estate professional, such as a REALTOR®. Please note that a key part of determining whether a property is a worthy investment is the after repair value (ARV). The ARV is the property’s market value after it’s been repaired and renovated. Calculating this will give you an idea of the profit you can expect to earn.
–
2. Start renovating
Step number two is to start renovating. This is known as the rehab or renovate step. Depending on the condition of the property you purchase, this step could involve simple fixes like painting or complex renovations, such as gutting the home and starting over. Try to follow the renovation process as closely as possible to avoid going over budget and choosing repairs that are necessary and known to boost property value.
–
3. Find a tenant and rent out the investment property
Once the renovations are complete and the property is move-in ready, it’s time to find a tenant and start collecting rent. Think carefully about the rent you want to charge. It should reflect the work you put in while still being in line with average rents in the area. You also want to choose an amount that will cover the ongoing property expenses while leaving you with a bit of extra money each month. Remember that each mortgage payment you make increases your home equity, and by finding a tenant and charging them rent, you can pay off your mortgage quicker and with their money rather than your own.
–
4. Refinance the property and pull out your equity
Step number four of the BRRRR method is to refinance the property and pull out your equity to buy a new property. This step should only be done once the existing property is rented out and earning a steady stream of income. Refinancing can be done with a traditional lender or a private lender. When you pull out your equity through refinancing, you are effectively borrowing more money than you did with your original mortgage, so you must have enough equity built up (many lenders often do not allow borrowers to refinance more than 75% or 80% of their home’s value).
–
5. Go back to step one and start all over again
This step is pretty self-explanatory. Since the goal of BRRRR investing is to build your portfolio by investing in multiple properties, the final step is to go back to the beginning and start all over again with a new piece of real estate.
Frequently Asked Questions
Is buying a house at auction a good idea when using the BRRRR method?
It can be. When you buy a house at auction, you may end up paying below market value, which is a key component of the BRRRR method. However, it’s worth noting that in some cases, you may not be able to tour the house or hire a home inspector to assess it before buying, which means you won’t know the condition of the home. The risk here is that you purchase a home with the intention of renovating it but the cost of repairs ends up being much higher than originally expected, significantly reducing your profits upon selling.
What type of financing options do I have for the BRRRR method?
The financing options an investor has using the BRRRR method are as follows:
-
Home equity line of credit (HELOC): If you already own a property (whether it’s an investment property or a principal residence), you could consider taking out a home equity line of credit. HELOCs often come with fast closing times and no appraisals.
-
Conventional loan: Though not ideal for the BRRRR method, taking out a conventional loan could be an option. That said, conventional loans may limit the types of properties you can purchase and they also tend to close more slowly.
-
Hard money loan/private lender: Obtaining a hard money loan from a private lender is another financial option. However, some hard money or private lenders require an appraisal and may have other stipulations (such as how much to charge for rent or how much money the property brings in). Of course, hard money loans also come with higher interest rates than a standard mortgage, which can be risky. A hard money loan can be a good way to get started with the BRRRR method but is not an ideal strategy for the long term.
While the options above can be useful, especially if you’re just getting started, the best option is to pay in cash.
Are there any differences in using the BRRRR method in Canada compared to elsewhere?
There are no major differences in using the BRRRR method in Canada compared to other countries in the world, such as the United States. The practice of buying a property at a good price, renovating it to increase appreciation, renting it out, and refinancing it is used all over the world. However, every country has its own tax systems, financing, and regulations, which you must be aware of before investing.
Who created the BRRRR method?
The BRRRR acronym was coined by Brandon Turner, a real estate expert, bestselling author, and the former host of the BiggerPockets podcast. One of the earliest examples of the BRRRR method being used was in a YouTube video published by Turner in March 2017. The name of the video was “Intro to BRRRR Real Estate Investing.” Though it was introduced five years ago, the method soared in popularity more recently. It was in 2021, as home prices in Canada skyrocketed, that real estate investing became more lucrative and the BRRRR method really caught on.
Emily Southey
Wahi Writer
