JLM Blog | What is the BRRRR Method in Real Estate Investing?Real Estate News, Updates, and Tips
Multifamily Real Estate San Diego
Article published on June 13, 2022.
San Diego is a city known for its beautiful beaches and sunny days, but what many people don’t know is that it’s also a hot spot for multifamily real estate. In fact, according to the National Multifamily Housing Council (NMHC), there are now over 1 million multifamily units in the San Diego metropolitan area.
This makes it one of the most active markets for multifamily real estate in the country.
Why is Multifamily Real Estate San Diego so popular?
There are a few reasons.
- The population is growing. In fact, according to the U.S. Census Bureau, between 2010 and 2020, the population of San Diego is projected to grow by an estimated 54,000 residents.
- This means that there are lots of new potential renters looking for homes.
- There are a lot of rental properties available in San Diego. According to Trulia, as of March 2019, there were more than 192,000 housing units available for rent in the San Diego metro area.
- This means that there are plenty of opportunities for investors to find properties that fit their needs.
- There are Lower Vacancy and Higher Rents.
To Capitalize on this, you Need a Strategy
The BRRRR strategy is a method for real estate investors to reduce their risk while still achieving a return on investment.
The acronym stands for Buy, Rehab, Rent, Refinance, Repeat.
Basically, the BRRRR strategy is a way to make smart decisions based on your own goals and needs in order to maximize your profits.
When it comes to buying a piece of real estate, there is a complex intersection that must be navigated. This will include determining the total cost of improvements and repairs, estimating the amount of monthly rental costs, and determining whether or not the rental income will be a sufficiently high-profit margin. Researching the optimum rental markets and ensuring that the purchase price includes a sufficient amount of wiggle room for potential renovation expenses are two steps that can be taken to improve the chances of a rental property’s strong performance.
The rehabilitation phase of the BRRRR strategy calls for in-depth cost-benefit analysis at every stage of the process. It is recommended that prospective investors limit themselves to home improvement projects that offer a high rate of return on their capital. Keep an eye out for these renovation projects that offer a high return on investment:.
Rehabbers have an opportunity to increase value in homes that have a large number of square feet but not enough bedrooms. For example, bringing the total number of bedrooms in a house up to three or four will make it possible for it to compete more effectively with more expensive homes in the neighborhood.
This may include conducting tenant background checks, making tenant selections, overseeing turnover, and fielding requests for maintenance and repairs. Vacancies, problematic tenants, or rental expenses that exceed the income produced are all examples of things that could go wrong. All of these potential outcomes have the potential to quickly put a property in negative equity, which increases the risk of foreclosure.
After your property has been rehabilitated and rented, you can begin the process of formulating a strategy for how you will refinance it. You will want to go with the first of these two options, which is to refinance your mortgage in order to get cash out. Some financial institutions will only offer to pay off your existing debt.
An investor can use the money from their first rental property to fund the purchase of their second rental property as well as any necessary renovations. Additional advantages can be gained through the use of a cash-out refinance. These include tax benefits, favorable interest rates, and the ability to retain control over your financial timeline.
Financing BRRRR Properties
Figuring out how to get financing for BRRRR properties is one of the most challenging challenges that beginning investors face. The majority of the time, you will be required to obtain financing for the property more than once. The following are some of the choices that are available to you if this will be your first time buying real estate
CONVENTIONAL BANK LOANS
Require 20–25% down. Interest rates should be similar to owner-occupant loans. If the property is in poor shape, the bank may not provide you a loan.
Give additional rental property loan flexibility. They may require the same down payment as regular bank loans but ignore repair costs. They give mortgage limit and debt-to-income ratio flexibility.
Include family, friends, business partners, and investors. Rates vary by property and lender relationship. Private lenders often fund property repairs.
HARD MONEY LENDERS
Lend to house flippers and landlords. Hard money loans cost more than bank loans. However, repairs and enhancements are likely covered.
Do you want to sell or acquire property?
JLM Real Estate in San Diego can help you today and provide you with a free property valuation.
Check out our team page and check which one of our advisors best fit your needs.