What Is The BRRRR Method?
Just what is the BRRRR method of real estate investing? BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat, and it can be a great way to build a real estate investment portfolio.
It’s not easy though, and it requires you to be knowledgeable of rental housing and renovation costs in your area, among other things.
And as with any real estate investing, there are always risks involved. But if you stay up-to-date on your local real estate market, the BRRRR method of real estate investing may be the right option for you.It works like this: You buy a rental property in need of a little of TLC (or perhaps a lot or it…).
You then rehab the property to meet all required building codes, rental standards, etc. Then you rent it out and use that rental income to refinance the property at a lower interest rate. The proceeds from the refinance can then be used as capital to repeat the process with another rental property.
How Is The BRRRR Method Different From Fix & Flip Investing?
Unlike a traditional fix and flip property renovation investment, the intention with utilizing the BRRRR method is not to re-sell the property once the renovations have been completed, but to hold onto it and rent it out.
With BRRRR, you’re looking to build up a substantial real estate portfolio rather than flip houses.
How Do I Insure A BRRRR Investment Property
Similar to fix and flip investment properties, a standard homeowner policy will typically not provide adequate insurance coverage protection for your BRRRR investment – either during the rehab phase or the rental phase. And both phases could require two separate insurance policies.
Rehab Phase
During the rehab phase, the property will likely be viewed as any traditional renovation project by many insurance carriers, and will require specific types of policies/coverages, rather than a standard homeowner policy.
Depending on how long a property will remain empty prior to renovation, you may need start with a Dwelling Policy, which is designed to provide coverage for vacant dwellings.
Once renovations begin, it will likely be necessary to transition to a Builder’s Risk policy. This type of coverage will help protect against certain losses while the property is being rehabbed.
Rent Phase
Once the “Rehab” phase is complete, and you’re ready to move onto the “Rent” phase, you will need to purchase rental property insurance, or landlord insurance.
This is insurance coverage designed and intended specifically for rental investment properties. Some specialty insurance carriers that focus on fix and flip and other types of specialty property coverages may be able to simply convert your Builder’s Risk renovation policy into a landlord insurance policy.
Conclusion
While the BRRRR method can be a great way of starting, or continuing, your real estate investment journey, it is not without risks.
Understanding how to obtain adequate insurance protection for you BRRRR portfolio is critical to protecting your valuable assets.
Be sure to include an insurance agent or broker that specializes in unique and difficult to place risks as part of your overall real estate investment team.
****This article is intended for informational/educational purposes only. It is not meant as, nor should it be interpreted as, actual investment advise regarding real estate investing of any kind, including investing in “BRRRR” properties, fix and flip properties, vacant properties or rental properties*****