Value add real estate investing is a great edge in the current market. The BRRRR strategy; buy, renovate, rent, refinance, repeat, is a great way to go about it.
In the past couple years I have focused on this strategy with small multifamily properties, 2-4 units. The beauty part of this strategy is it really comes down to just 5 questions in order to know if a property will make for a good BRRRR or not.
By answering these five questions you produce a result for the most important items:
- The cash-out refinance amount
- The max purchase price to acquire the property.
5 Simple Questions for BRRRRing Small Multifamily
1.) What is the after repair value (ARV)?
2.) What are my loan terms?
After you have answered these two questions you will have a rough idea of how much money you can pull out of the property after it is repaired and rented.
3.) What is my estimated renovation cost?
4.) What are my refinancing costs?
By answering these you know what your total costs will be. Then it just becomes a math equation.
Cash-Out Loan Amount minus Total Costs = Maximum Purchase Price
Once you have this answer you now know the max amount you can purchase the property for. Getting the property at the right price is integral to a successful BRRRR. However, you still need to make sure the property cash flows, that is a main point in holding rental property after all.
5.) How much do I want to cash flow?
This one takes some calculation, which is exactly why we use rental property calculators. If you are not already using one I suggest getting familiar with running the numbers on deals.
Then you can plug in the numbers for the end result of your BRRRR deal just as you would when analyzing any deal.
Be sure to use the ARV as your price point and the loan terms you intend to pull. Then based on rents and expenses you can see if the property will cash flow when pulling out the max amount on your cash-out loan.