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The BRRRR method keeps coming up because it answers a basic question: how do you build a rental property portfolio when you don't have unlimited money? I've helped clients figure out different investment strategies for years.
BRRRR means "Buy, Rehab, Rent, Refinance, Repeat." You can use the same money to buy more properties over and over again by taking out the equity you build through renovations. Refinancing lets you get your money back instead of leaving it in one property forever.
This is what makes it different from the usual buy-and-hold. When you buy a house the normal way, you might pay $200,000 and put down $40,000, or 20%. The house keeps that money. You can rent it out, but you can't use the money you put in for anything else. With BRRRR, you're looking for properties that are undervalued or in bad shape that you can fix up and refinance. This could help you get back most or all of your initial investment to use again.
ATTOM Data Solutions' U.S. housing market analysis says that about 3.8% of homes in the U.S. were in trouble in 2024. This gave BRRRR investors a lot of chances. That means there are about 5.2 million possible properties across the country.
The BRRRR method still works even though interest rates are higher than they were in 2020 and 2021. This is because you're making improvements that raise the value of your property instead of just waiting for the market to do it for you. You're also making money from rent, which helps pay for the higher cost of borrowing.
Think about the math: to buy five rental properties worth $200,000 each, you would need $200,000 in cash (five properties times $40,000 down payment). If you use the BRRRR method, you might be able to buy those same five properties with just one or two down payments by using your money again. That's how strong this plan is when done right.
We use this method all the time at AmeriSave when working with investors, and I can tell you that those who stick to conservative buying rules do much better when the markets change than those who go too far.
You're not looking for homes that are ready to move into; you're looking for homes that other buyers might miss. The best BRRRR property sells for 20–40% less than its market value because of its condition. It only needs cosmetic or moderate repairs, not major structural work, and it is in a rental market with high demand and stable jobs.
Where do you find these kinds of deals? You won't always find distressed properties in regular MLS listings. You may need to look further through wholesalers who find deals that aren't on the market, foreclosure and short sale listings from banks, direct mail campaigns aimed at owners who don't live there, and websites like Auction.com or local real estate investment networks.
The National Association of Realtors' 2024 Investment and Vacation Home Buyers Survey says that 22% of all home purchases in 2023 were for investment properties, with buyers paying an average of $325,000.
The 70% rule keeps you from paying too much and ruining your chances of making money. This is the formula:
The maximum price you can pay is (0.70 × After-Repair Value) - Estimated Repair Costs.
Let me show you with some actual numbers. If a house needs $40,000 in repairs and will be worth $300,000 after the work is done, you should only pay $170,000 for it. To get that number, you take $300,000 times 0.70 and then subtract $40,000.
You would be paying $15,000 too much if the seller wants $185,000. That cushion keeps you safe from unexpected repair costs, market values that don't rise as expected, holding costs that eat into your profit, and refinance appraisals that come in lower than you thought they would. The investors I work with who always follow this rule do better than those who don't.
Let me tell you about something that happened here in Louisville last year. This property in the Highlands neighborhood looked great on paper. It was a beautiful Victorian that needed some work but had good bones. The seller wanted $195,000, and the investor I was working with was excited because similar homes sold for $310,000 after being fixed up. But when we used a realistic $50,000 renovation budget, the 70% rule said the most we could spend was $167,000. The buyer tried to lower the price, but the seller wouldn't budge, so we left. Half a year later? That property sold for $160,000 because the problems with the foundation were worse than anyone thought. He avoided a disaster by following the rule.
This step is what makes the difference between investors who do well and those who don't. You're remodeling for a reason: to get the most value and rental appeal while keeping costs down. It's not because you like to remodel.
Put your renovation budget in this order of importance: First, take care of any safety and code compliance issues that need to be fixed, such as problems with the roof, plumbing, electrical, structure, or HVAC. Second, work on improvements that will add a lot of value, like updating the kitchen, remodeling the bathroom, putting in new flooring, painting the house, and making the outside look better. Third, make the place more appealing to tenants by adding things like energy-efficient windows and high-quality appliances. Lastly, only think about upgrades that are nice to have if you can afford them.
Remodeling Magazine's 2024 Cost vs. Value Report says that small kitchen remodels get back about 85.7% of their cost when they sell, while bathroom additions get back about 52.1%. Keep in mind that you're not selling right away; you're making the property more appealing to renters and increasing its value for refinancing.
Put 15 to 20 percent more into your renovation budget as a safety net. If you think repairs will cost $30,000, save $34,500 to $36,000. That extra money will cover any plumbing problems that come up behind walls or permit fees you forgot about. When you add in delays in getting permits, scheduling contractors, shipping materials, and surprises, a renovation that "should take 6 weeks" often takes 10 to 12 weeks.
I learned this lesson the hard way when I was in my MSW program and trying to make extra money by doing a small renovation project on the side. I made sure to budget everything down to the last penny because there isn't much room for mistakes in grad school, is there? The "simple cosmetic update" turned into finding knob-and-tube wiring that had to be completely replaced. I thought it would cost $15,000, but it ended up costing $19,500. Since then, I always tell my clients to plan for the worst and hope for the best.
You need tenants who will pay on time and take care of the property after the renovations are done. This step is very important because most lenders won't let you do a cash-out refinance on a rental property until it has been rented for at least 6 to 12 months.
Setting the right rent means getting the most money while keeping the least amount of time between tenants. Find rental properties that are similar to yours within 0.5 miles and have the same square footage (within 10–15%), number of bedrooms and bathrooms, age and condition, and amenities.
Start with the 1% rule: the rent you pay each month should be at least 1% of the total amount you invested. If you've put in $200,000, you should charge at least $2,000 a month. In some markets, this isn't always possible, but it's a good goal.
Don't skip tenant screening just to fill a vacancy quickly. The 2024 SmartMove Tenant Screening Report from TransUnion says that 87% of landlords who did thorough screenings had fewer problems with their tenants. A bad tenant can cost you $10,000 to $20,000 in lost rent, legal fees, property damage, and the cost of evicting them.
At the very least, check the credit history for patterns, not just scores; the rental history from previous landlords; the income verification to make sure the rent is 30% or less of the gross monthly income; the employment verification to show a stable job history; and the criminal background and eviction history, following Fair Housing laws very carefully.
A lot of people move from smaller towns to Louisville for work here in Kentucky. They might not have a lot of credit, but they do have steady jobs and a good rental history. That's why the full screening is so important—you need to see the whole picture, not just one piece of data. I remember working with a property manager who almost turned down a great tenant because their credit score was only 620. But when we looked into it more, we found out that the person had been paying on time for three years and that the score was just rebuilding after a medical bankruptcy. That tenant paid their rent on time every month for four years.
This is where the BRRRR magic happens. You refinance your property after it has been fixed up, rented out, and seasoned (usually 6 to 12 months) to get the equity you built up.
Most lenders won't let you cash out on a refinance until you've owned the property for 6 to 12 months. Fannie Mae usually needs six months for properties that were bought and fixed up to rent out. Lenders usually limit cash-out refinances on investment properties to 70–80% loan-to-value (LTV). You can borrow $210,000 to $240,000, minus the amount of your current mortgage, if your property is worth $300,000.
Lenders want to see that the rental income is enough to cover the debt through Debt-Service Coverage Ratio (DSCR) requirements, which are usually 1.25 or higher. Your rent must be at least 125% of your mortgage payment. For conventional investment property refinances, you should expect to have a credit score of at least 620 to 640. If your score is 680 or higher, you will get better rates.
This is where reality and projections don't always match up. You thought your house would be worth $300,000 after the renovations, but it's only worth $280,000. That $20,000 difference makes a big difference in how much cash you can get out. If you had a 75% LTV, you'd get $225,000 on the higher appraisal and $210,000 on the actual appraisal. That's $80,000 minus a $145,000 mortgage, which means you need $15,000 more for your next property's down payment.
I always tell investors to shop around when they use AmeriSave to help them find the best refinance options. Different lenders have very different rates and terms. For example, a 0.5% difference in the rate on a $200,000 loan costs $1,000 a year. That's $30,000 over the course of 30 years.
It usually takes 30 to 45 days to refinance, and the closing costs are usually 2 to 5% of the loan amount. If you refinance for $225,000, you could pay $5,000 to $8,000 in fees. These include an appraisal ($400 to $600), origination and underwriting fees (0.5% to 1% of the loan), a title search and insurance ($500 to $2,000), and recording fees ($100 to $300). Putting these into the loan lowers the amount of cash you can get out.
You've finished one cycle. The next step is to figure out how to do it again in a way that keeps risk low. Different investors scale at different rates depending on how much money they have, how much time they have, how much risk they are willing to take, and how the market is doing.
Conservative investors buy one property every year so they can carefully look over each deal and learn from each one. That's five properties that could bring in $2,000 a month in passive income at $400 each after five years. Moderate investors buy 2 to 3 properties each year, which means they need more money and a dependable team. In 5 years, they will have 10 to 15 properties. Aggressive investors who buy four or more properties a year see this as full-time investing and have a lot of money, great systems, and full teams.
A study by the RealWealth Network in 2024 looked at how investors did. It found that the median BRRRR investor bought 2.3 properties per year, while the best investors bought 4.1 properties per year. What's the difference? The best performers had systems in place, teams they could trust, and access to a variety of funding sources.
Not heroic effort on each deal, but systems are what make things work. You need a deal analysis system to quickly look at properties, a way to work with more than one lender, a network of contractors with backup options for each trade, property management systems for collecting rent and doing maintenance, and a way to keep track of contracts, receipts, and financial records for more than one property.
Sometimes the best thing to do is to stop and build up your cash reserves, pay off debt on your current properties, increase your cash flow before buying more properties, wait for better market conditions, or focus on making your current holdings run better. The BRRRR method is powerful, but it's better to grow your portfolio slowly than quickly, which can lead to foreclosure.
Let me show you some numbers that are based on how the market is right now. You find a 3-bedroom, 2-bath house that needs a lot of work, like a kitchen that hasn't been updated in a long time, worn-out floors, old HVAC, and cosmetic changes all over.
Hold on, I need to explain something important about that table. The number for "Net Position" seems small compared to all the work that needs to be done, right? But keep in mind that you've basically gotten all your money back plus profit. You also own an asset that brings in cash flow every month, and you have $71,750 to use on your next property. That's the magic of BRRRR. You're not trying to hit a home run with every deal; you're building wealth over time by doing a lot of deals and building up equity.
To be honest, this plan won't work for everyone. I've seen it work great and cause a lot of money problems.
You can build big portfolios with little money if you use capital efficiently. Instead of waiting for the market to go up, you create value by making improvements to your property. You can make money in many ways, such as through cash flow, long-term appreciation, paying down your principal, tax breaks from depreciation, and taking out equity. Real estate is a good way to diversify your investments away from stocks. It also protects you from inflation because property values and rents usually go up with inflation, but your fixed mortgage payment stays the same.
The most common problem is going over budget on renovations. The 2024 True Cost Report from HomeAdvisor says that 63% of home renovation projects go over their original budgets by an average of 18%. For BRRRR investors with small margins, a $40,000 renovation that costs $50,000 kills their chances of making money.
If the refinance appraisal doesn't back up your ARV estimate, your whole plan is at risk. If you come in 10–15% low, your money is stuck in the deal. It costs money every month that you don't have a paying tenant. The ATTOM 2024 Rental Housing Report says that the median vacancy rate for single-family rentals across the country was 6.8%. This number ranged from less than 4% in strong markets to more than 12% in weak ones.
Interest rate sensitivity has a big effect on you because BRRRR means you have a lot of debt on a lot of properties. At 8%, a property that makes 6% cash flow might break even or lose money. It can be a full-time job to manage renovations, contractors, tenants, and refinances across more than one property. If you buy a lot of properties when the market turns, you could end up with properties worth less than what you owe, lower rents, and not being able to refinance.
After refinancing, a lot of BRRRR properties don't make much money or even lose money. You're betting on long-term growth in value and equity, which works until you have a financial emergency and need that money every month.
Your BRRRR strategy for getting money can make or break it.
Hard money loans are the most common type of loan. They usually have rates of 9–12% per year, terms of 6–24 months, and 2–5 points up front. Approval usually takes 5–10 days. Individuals who lend private money usually charge between 6% and 10% interest and have terms that can be negotiated. Home equity lines of credit (HELOCs) are currently between 8.5% and 10.5%, but they put your main home at risk. Conventional mortgages have the lowest rates for investment properties, between 7.5% and 8.5%, but they require a down payment of 15% to 25% and take longer to get approved.
We can help you look into traditional financing options for investment properties that qualify at AmeriSave. However, if you have a really distressed BRRRR property, you will probably need hard money first.
With a maximum loan-to-value (LTV) ratio of 75–80% for investment properties, conventional cash-out refinances usually have rates that are 0.5–0.75% higher than primary residence rates. DSCR loans are based only on rental income from the property, not on personal income. This is great for self-employed investors or people who own a lot of properties, but rates are 0.5–1% higher. Portfolio loans from banks and credit unions are more flexible when it comes to credit, debt-to-income, and the number of properties you own, but they usually cost 0.5% to 1.5% more than regular loans.
After working with many investors, I see the same mistakes over and over again.
Not taking the time to check out three bids and pick the lowest one can often backfire. Usually, the lowest bid is low because they haven't included everything that needs to be done, plan to use cheaper materials, don't have a good sense of how long things will take, or are new to the business. Always add 15–20% to your estimates.
Not paying attention to rental markets in the area: A $25,000 gourmet kitchen in an area where rents are only $1,500 a month won't bring in any extra rent or a much higher appraisal value. You have too much money. Before making plans for renovations, look at real rental comps and try to get into the top 20% of the local rental market.
Bad contractor management: If you pay a lot of money up front or the full amount before the job is done, you lose your power. Use payment plans based on milestones: 10% deposit, 25% when the demolition is done, 35% when the rough-in is done, 25% when the substantial completion is done, and 5% when the walkthrough is done. Always keep at least 10–15% of the money until the project is done to your liking.
Not screening tenants: It's risky to feel like you have to fill a vacancy quickly and hire the first decent applicant you find. TransUnion's 2024 screening data (accessed on October 30, 2025) shows that tenants who passed a full screening had a 73% lower eviction rate than those who didn't. Use the same screening criteria for all applicants and check everything.
Ignoring the reality of cash flow: If you think everything will go perfectly, with no vacancies, no major repairs, and rent always paid on time, you're setting yourself up for stress. Don't do the deal if your analysis shows a $200 monthly profit with no room for problems. Set aside 1–2% of the property's value each year for maintenance, 5–8% for vacancies, and enough money to cover 3–6 months of expenses for each property.
Overleveraging too quickly: If you go from owning one property to five in a year without enough money or experience, it can be financially disastrous when more than one property has problems at the same time. Scale up slowly, master each step with 1–2 properties before quickly adding more, and build up your reserve funds and systems before your portfolio size.
I don't know how many ways this could go wrong, but I'm getting tired just thinking about it. But really? BRRRR works if you are careful, methodical, and don't try to get rich quickly. I've seen it work a lot of times. Don't be the person who skips steps or ignores warning signs because you're excited about a deal.
I'm not a CPA or tax lawyer, but here are some important tax things you should talk about with your tax professional.
In general, you have to pay taxes on your rental income. However, you can deduct things like mortgage interest, property taxes, insurance, property management fees, repairs and maintenance, utilities you pay, advertising, legal and professional fees, travel costs related to properties, and depreciation.
You can write off the value of a rental home over 27.5 years with the IRS. As of November 1, 2025, IRS Publication 527 says that on a $275,000 property (structure value only since land isn't depreciable), that's $10,000 a year in depreciation expense that lowers taxable income without any cash outlay. Depending on your situation and whether you are a real estate professional, depreciation can sometimes make a "paper loss" that cancels out other income.
You'll have to pay capital gains tax on any profit you make when you sell a BRRRR property. If you own a property for more than 12 months, you can pay long-term capital gains rates (currently 0%, 15%, or 20%, depending on your income compared to ordinary income rates up to 37%). You can also defer taxes through 1031 exchanges and get back depreciation taken over the years at a rate of 25%.
Before you buy your first property, talk to a CPA who specializes in real estate. Tax strategy can have a big effect on returns and help you decide when to sell or hold, how to structure ownership, and how to get the most deductions. Don't skip this step, seriously. I've seen people lose tens of thousands because they didn't plan ahead.
You can't scale BRRRR by yourself. You need trustworthy team members, such as an investor-focused real estate agent who knows how to calculate ARV and rental comps, contractors who give accurate estimates and finish work on time and within budget, hard money lenders (get to know 2-3 before you need them), refinance lenders who know what investment properties need, property managers if you're not managing the property yourself (they usually charge 8-10% of the monthly rent), insurance agents who know about landlord policies, CPAs who know about real estate taxes, and lawyers who can help with contracts, entity structure, lease agreements, and evictions.
Referrals are the best way to find good team members. Ask other investors in your area, your real estate agent for contractor recommendations, go to local REIA meetings, and join online investor forums that are specific to your market. Before you agree to anything, make sure they have the right licenses, insurance, references, and past work.
We work with real estate investors all the time at AmeriSave, and we can help you find financing options that fit your BRRRR strategy as you grow your portfolio.
Is BRRRR the Right Thing for You?
To be clear, BRRRR is strong but hard to use. At first, it's not passive real estate investing. Think about these things.
Do you have the money you need, like an emergency fund that can cover six months' worth of personal expenses, enough money for down payments and renovations (at least $50,000 to $75,000 in most markets), good credit (usually 680 or higher for the best results), and enough income to cover any times when your cash flow might be negative?
Do you have the time and temperament to manage renovation projects, deal with tenant issues, and be patient with 1- to 2-year cycles for each property? Can you handle the stress of financial leverage and uncertainty?
Does your market support it by having distressed properties that are very cheap, a lot of people looking to rent with low vacancy rates, rent-to-price ratios that support cash flow, and stable or growing employment and population?
Do you have a basic understanding of real estate contracts and financing, the ability to estimate the cost of renovations, knowledge of landlord-tenant laws, and the ability to analyze finances?
If you said "no" or "not sure" to a lot of these, you might want to start with traditional buy-and-hold investing to learn about the rental property business before trying BRRRR. First, learn and save money. There's nothing wrong with that; in fact, it's the smart thing to do.
The BRRRR method won't make you rich quickly. It's a methodical way to build wealth that lets you use renovations and refinancing to grow your rental property portfolio faster than the usual buy-and-hold investing method.
To be successful with BRRRR, you need to use the 70% rule to do careful financial analysis, have enough money and reserves for unexpected costs, work with trustworthy contractors, lenders, and property professionals, be patient through 12–18 month cycles for each property, have realistic expectations about cash flow and scaling timelines, and make sure that your systems and processes get better with each iteration.
People who are good at investing see it as a business, not a hobby. They keep a close eye on numbers, build strong teams, take their time instead of rushing, and stick to their budgets even when it seems like there are a lot of opportunities.
If you want to invest in BRRRR, you should learn everything you can about it first. Read a lot, go to local REIA meetings, find a mentor who has successfully completed several cycles, and look over deals carefully before putting your money into them. If you want to learn how to do things with less risk, think about teaming up with an experienced investor on your first project.
The chance of getting rich is real. Over the course of 5 to 7 years, you can build a portfolio of 10 to 15 properties that will give you a lot of equity and $3,000 to $5,000 or more in passive income every month. But that result depends on doing each step right, learning from mistakes, and growing in a planned way.
Are you ready to look into financing options for your investment property plan? We help investors figure out how to refinance their rental portfolios and how the BRRRR method can fit into their overall financial picture at AmeriSave. Today is the day to start looking into your options.
If you need to, you'll usually need at least $50,000 to $75,000 to cover the down payment, renovation costs, holding costs, and enough money for unexpected costs. But the exact amount changes a lot from one market to the next. In markets with lower prices, you might start with $30,000 to $40,000. In markets with higher prices, you might need $100,000 or more. In addition to your initial investment, you need enough cash on hand to cover six months' worth of personal expenses and at least three to six months' worth of property expenses for each property. A lot of new investors don't realize how much money they really need and have problems when renovation costs go over budget or properties stay empty longer than they thought they would. If you know a lot but don't have a lot of money, you might want to start with a partner. You could also work as a contractor for other investors to learn the ropes while building up your own money.
Yes, but there are a lot of restrictions that make it impractical for most investors. You can't do the BRRRR refinance step right away because FHA loans require you to live in the property as your main home for at least a year. Some investors, on the other hand, use FHA strategically by buying a two- to four-unit property, living in one unit while renting out the others, and then refinancing after a year when they move out. This lets you get FHA's low 3.5% down payment and good rates, but it's not the real BRRRR method. The property must also meet FHA's minimum property standards, so properties that are in very bad shape won't qualify. Most BRRRR investors choose hard money loans or regular investment property financing instead because they are more flexible, even though they cost more.
The 70% rule is a quick way to figure out how much you should pay for a property that is in trouble. The maximum purchase price is 70% of the after-repair value minus the estimated cost of repairs. If a house will be worth $300,000 after renovations that cost $40,000, you shouldn't pay more than $170,000 for it. That's $210,000, which is 70% of $300,000, minus $40,000 for repairs. This rule protects your profit margin and takes into account costs that come up unexpectedly, changes in the market, holding costs, financing fees, and lower-than-expected appraisals for refinancing. Over decades of investing in real estate, the 30% cushion has shown to be a good way to protect against the unknowns that come with renovation projects. Some conservative investors use a 65% or 60% rule when the market is uncertain. More experienced investors in hot markets might go up to 75%, but real estate investment data shows that going over 70% is usually linked to lower success rates and higher loss rates.
Your first full BRRRR cycle should take 12 to 18 months. Finding and buying the property can take anywhere from one to three months, depending on the market. Moderate rehabs can take two to four months, while extensive work can take longer. Finding a tenant and signing a lease can take two to six weeks. The seasoning period before refinancing can take six to twelve months of rental history, depending on the lender. The refinancing process can take 30 to 45 days. You can shorten this time frame as you get better at what you do and build systems. Sometimes, experienced investors with trustworthy teams and financing relationships can finish the cycle in eight to ten months by doing phases at the same time or working with lenders who have shorter seasoning requirements. But rushing the process often leads to problems like expensive renovation mistakes, accepting bad tenants, or problems with refinancing. Plan carefully, especially for your first few properties.
This is one of the most common problems that people have when they invest in BRRRR, and it can have a big effect on your returns. If the appraisal is 5–10% lower than your ARV estimate, you will get less cash when you refinance, which could leave money tied up in the property that you planned to use to buy your next one. If you thought your home would be worth $300,000 but it was only worth $270,000, you can only borrow $202,500 instead of $225,000, which is $22,500 less than what you could have borrowed. You can ask the lender to reconsider the value by giving them more comparable sales, put off the refinance and try again in six to twelve months after the market has gone up more, bring more money to your next deal from other sources, or change your expectations and accept a longer timeline to reach your portfolio goals. This is why it's so important to use conservative ARV estimates and stick to the 70% rule: they give you a cushion in case these things happen. Professional appraisals before you buy can help you confirm your ARV assumptions, but they cost between $400 and $600.
The answer depends on your goals, the size of your business, and the situation. If you own one to three properties close to your home, have time to quickly handle tenant calls and maintenance issues, like being hands-on and solving problems, and want to make the most money by not paying the eight to ten percent management fee, then self-management makes sense. If you own four or more properties or properties in different places, have a full-time job that keeps you busy, live far away from your rental properties, find managing tenants stressful, or want to grow your portfolio without having to spend more time on it, property management makes sense. Think about the real cost of managing your own property beyond the management fee you save. Your time is valuable, and emergency calls after hours can be disruptive, and dealing with difficult tenants can be emotionally draining. Many successful BRRRR investors manage their first two to three properties on their own so they can learn the business inside and out. Then, as they grow, they switch to professional management.
Yes, but you need to plan carefully and have realistic expectations about what you can do. Many successful BRRRR investors got their start while working full-time jobs. They usually bought one to two properties a year instead of trying to grow quickly. The most important thing is to put together a dependable team that can handle everyday tasks. This includes a general contractor who can manage renovation work, a property manager who can deal with tenants and maintenance, a responsive lender, and a good real estate agent who can find properties and do paperwork. Instead of doing the work yourself, you are now in charge of overseeing the project and making decisions. During the active acquisition and renovation phases, you should plan to spend evenings and weekends working on the project. During busy times, you might spend 10 to 15 hours a week on it, but once the properties are rented, your involvement will be less. You get used to going to see properties on the weekends, meeting with contractors during lunch breaks, and making phone calls in the evening. The benefits of keeping your job are that you have a steady income that can help you get through times when you don't have enough money and that it's easier to get financing.
The main risks are that the cost of renovations will go over your budget, which means you need to plan for 15% to 20% more than you thought you would need. Appraisal risk is when the refinance appraisal comes in lower than expected, which stops capital extraction. Long periods of vacancy use up cash reserves and make it impossible to refinance. If you have to make big, unexpected repairs on a rental property, like fixing the roof or the foundation, you need to keep reserves equal to one to two percent of the property's value each year. Tenant issues like not paying rent and needing to be evicted make it very important to do a full screening. When interest rates go up, cash flow goes down and refinancing costs more. When the market goes down, both property values and the demand for rentals go down at the same time. Scaling too quickly without enough reserves across multiple properties makes you more vulnerable. You need to carefully check out contractors and make milestone payments if they do bad work or leave projects unfinished. If deals don't go as planned and your money stays stuck, you lose out on opportunity cost. According to research on why real estate investors fail, the main reasons are overleveraging and not having enough reserves during market downturns.
Yes, BRRRR is still a good option even if rates are above 7%, but you need to be more careful when looking at it and have realistic expectations. Higher interest rates have a number of effects on BRRRR. For example, hard money costs more at 10–12% than at 8–10% in low-rate environments. Refinance rates are higher, which means that cash flow is lower after refinancing, and DSCR requirements are harder to meet with higher mortgage payments. But BRRRR still works because you're making the value of the property go up through renovations instead of just relying on the market to do it. Higher interest rates often mean lower purchase prices because there is less competition, and rental demand usually stays strong even when rates are high. The key is to be careful with your numbers and not assume that you'll have a lot of cash flow right away, since many properties barely break even at first. Instead, focus on the total return, which includes appreciation and principal paydown, and build up bigger reserve funds since there is less room for error. At AmeriSave, we help investors figure out how their deals will work at different interest rates to make sure they still make sense in the current market.
Both strategies involve buying run-down properties and fixing them up, but they are very different. In house flipping, you buy properties that are worth less than they are worth, fix them up quickly, and then sell them for a profit within six to twelve months. This is an active income business where you get paid for each project you work on. BRRRR is all about buying run-down properties, fixing them up, renting them out for a long time, and building a portfolio of income-generating assets that you keep to build your wealth through asset accumulation and passive income. The financial models are different because flippers need bigger profit margins on each project to cover their short-term capital gains tax and living costs. On the other hand, BRRRR investors can accept smaller immediate cash flow because they are building equity and long-term wealth. Flippers usually use hard money for six to twelve months before selling, while BRRRR investors use hard money and then refinance to long-term conventional loans. Tax treatment is different for flip profits, which are usually taxed as regular income at your highest rate. On the other hand, BRRRR investors get depreciation, rental income treatment, and long-term capital gains if they sell their property.
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