The BRRRR Method: Free Calculator, Formula, & Strategy

Gaining more traction in the real estate investor community for its ability to leverage property value appreciation and generate consistent cash flow, the BRRRR method is a twenty-first-century evolution of traditional buy-and-hold strategies. And with the average rent-to-income ratio reaching more than 30%, according to The New York Times, there may be no better time to be a landlord than today. However, effectively executing the BRRRR method requires an intimate working knowledge of the market and its fundamental indicators.

The BRRRR method is an involved process with countless variables, not the least of which are integral to the execution of the strategy. Keeping track of each data point and number can get overwhelming. Fortunately, there’s a tool to help facilitate the process: a free BRRRR method calculator. With the help of a BRRRR calculator, savvy investors can easily streamline the entire process and scale their portfolios accordingly.

Are you ready to scale your investment business with the help of the BRRRR method? Whether you are a seasoned real estate professional or a novice investor breaking into the market for the first time, this guide will teach you how to use a BRRRR method calculator to make an already proven system even better in the short term, including:

• What Is A BRRRR Method Calculator?
• How Does The BRRRR Method Work?
• What Is The BRRRR Method Formula?
• BRRRR Method Example With Numbers
• What Are The Advantages Of The BRRRR Strategy?
• How Can I BRRRR With No Money?
• Is The BRRRR Strategy Worth It?
• Final Thoughts On BRRRR Method Calculators                                                                     

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What Is A BRRRR Method Calculator?

A BRRRR method calculator is a carefully designed tool built to assist real estate investors with the BRRRR method. Even a free BRRRR method calculator can automate and streamline the complex calculations involved in the Buy, Rehab, Rent, Refi, and Repeat strategy. In doing so, a properly calibrated BRRRR calculator can make it easier and more efficient for investors to scale their business operations.

An excellent free BRRRR calculator will incorporate various financial and property-related data, making it possible for investors to simultaneously evaluate the necessary key metrics: purchase price, rehab costs, monthly rent, cash flow, financing terms, and more.

With the proper inputs, a BRRRR calculator can tell investors everything they need to know about the BRRRR investing strategy, including:

• Property Analysis: A free BRRRR method calculator can help investors assess a potential investment property. Inputting essential variables like the purchase price, estimated rehab costs, and the after-repair value (ARV) will help decide whether or not investors should invest in a particular property for its cash flow potential.
• Cash Flow Projections: With enough inputs—like rental income, property management fees, mortgage costs and amortization, operating expenses, and refinancing terms—a BRRRR method calculator should identify expected monthly and annual cash flow potential. The cash flow projections will help determine the subject property’s viability as part of the BRRRR method.
• Return On Investment (ROI): BRRRR method calculators can identify important ROI metrics like cash-on-cash return, equity growth, and more. The resulting numbers will help investors gauge a deal’s potential profitability and compare it to others.
• Refinancing Analysis: BRRRR method calculators will allow investors to input information from institutional lenders and determine how much money they will save each month by refinancing. Specifically, the calculator will consider the loan amount, monthly mortgage payments, and cash-out amount and tell investors how much they can apply to a new deal.

In reality, most BRRRR method calculators represent the convergence of several formulas, each of which comes together to help investors make informed decisions as they Buy, Rehab, Rent, Refinance, and Repeat their way to a successful career.

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How Does The BRRRR Method Work?

The BRRRR method is as straightforward as its acronym suggests: buy, rehab, rent, refinance, and repeat. The specific arrangement of letters is akin to a step-by-step guide for investors who want to build and scale a real estate investment portfolio over time.

Beneath the surface, however, the BRRRR method is an investment strategy that awards investors the ability to recycle capital from existing assets into new ones. The addition of each asset is intended to compound returns and help investors build their portfolios exponentially.

Upon closer look, the BRRRR method leverages property value appreciation and rental income to generate profits that fund future investments. In doing so, the BRRRR method follows the steps below:

• Buy
• Rehab
• Rent
• Refinance
• Repeat

Buy

Not surprisingly, the first step in the BRRRR process is to buy a home. For the BRRRR method to work, however, it is essential to purchase assets below market value. As a result, investors often target distressed homes like REOs (real estate owned), wholesale deals, or hoarder houses to acquire assets below their actual market value.

Investors will ensure the total investment, including purchase price, repairs, closing costs, and carrying costs, does not exceed 75% of the property's after-repair value (ARV). Investors can determine an appropriate buying range by calculating the maximum purchase price using the formula (ARV x 75%) - Repair Cost.

Once a potential property passes this test, analyzing it as a rental property is crucial to ensure it generates sufficient cash flow to cover total expenses even after refinancing and recouping the initial investment.

Read Also: How To Find And Buy REO Properties: The Investor's Guide

Rehab

Investors need to renovate the property as soon as possible. While it is possible to make the renovations themselves, investors may be better off hiring a licensed contractor. Professional contractors will cost more money upfront but are likely better and more efficient with their time. Even handy investors can take too long to rehab a home or run into unexpected complications that hurt the original budget. Ultimately, the time and headaches a good contractor can save investors are worth the cost.

Once investors know who will make the renovations, it’s time to determine which renovations they will be making. To do so, conduct thorough research on nearby “comps” to determine the appropriate level of work needed. Typically, the goal is to make the subject property slightly better than the homes it will be compared to. Since the intention is not to sell the property, opt for long-lasting and cost-effective finishes while aligning with prevailing trends for high-quality rentals.

Investors want to increase the house's value without spending more than their budget or the BRRRR method allows. Therefore, the renovations must be specific and deliberate—the return on investment needs to be worthwhile. Instead of making arbitrary changes on a whim, consider the projects listed below, which Remodeling Magazine claims recoup the most costs:

• HVAC Conversion | Electrification: On a national level, it will cost investors about $17,747 to convert an HVAC system to an electric power source. However, investors can expect to recoup 103.5% of the cost.
• Garage Door Replacement: On a national level, it will cost investors about $4,302 to replace a garage door, but investors can expect to recoup 102.7% of the cost.
• Manufactured Stone Veneer: On a national level, it will cost investors about $10,925 to add manufactured stone veneer to a home, but investors can expect to recoup 102.3% of the cost.
• Entry Door Replacement | Steel: On a national level, it will cost investors about $2,214 to replace an entry door with a steel one, but investors can expect to recoup 100.9% of the cost.
• Siding Replacement | Vinyl: On a national level, it will cost investors about $16,348 to replace existing siding with vinyl siding, but investors can expect to recoup 94.7% of the cost.

The list goes on, but the point is that not all renovations are created equal. For the BRRRR method to work, renovations must add more value to the home than their cost.

Rent

After the property has been renovated, the next step is to find a tenant. Again, investors may do this step independently but are advised to refrain from doing so. Instead, consider enlisting the services of a third-party property manager. An experienced property manager will cost a percentage of the rents they help collect, which is integral to the BRRRR strategy.

The property manager takes care of the everyday responsibilities of being a landlord so that investors may focus on more important tasks—like scaling their portfolios. If for nothing else, investors who aren’t constantly catering to tenants can add more properties to their portfolios without adding more work, a key principle of the BRRRR strategy.

Included in their responsibilities, third-party property managers will help investors find and maintain tenants. Subsequently, they will help fill vacancies with tenants at competitive rental rates, which bodes well for buy-and-hold investors. Perhaps even more importantly, property managers will occupy vacant rental properties, which is necessary for the BRRRR strategy to be fully optimized.

Read Also: How To Calculate ROI On Rental Property

Refinance

After all of the steps up to this point are complete, it’s time to refinance the property. In doing so, investors will hire an appraiser to determine the property's new value—after the renovations mentioned above have been made. That way, the loan to value (LTV) will work more in their favor. Ultimately, investors hope the new appraisal value meets or exceeds the previously calculated ARV (from the “Buy” step).

Investors will want to shop around when seeking to refinance the subject property. In addition to favorable rates and terms, investors should look for lenders who can do a cash-out refinance with an affordable loan origination fee.

It is common for lenders to lend somewhere in the neighborhood of 70% to 80% of the appraised value in the form of a cash-out refinance. That means investors can receive a large sum of money—about 70% to 80% of the home’s ARV—if they find the right lender to work with. A BRRRR refinance calculator can make this step much easier.

Read Also: What Is A Hard Money Loan?

Repeat

Investors will want to take the money they receive from the cash-out refinance and purchase another property to add to their portfolio. To be clear, not any property will do; investors must adhere to the rules they applied in the first “Buy” step. With the help of a free BRRRR calculator, investors can ensure they repeat each step of the process accurately.

While you're progressing on your second BRRRR property, the first will continue to generate rental income and monthly cash flow, which can simultaneously pay for its mortgage and progress the BRRRR strategy further.                                 

What Is The BRRRR Method Formula?

The BRRRR method formula will tell investors how much they can spend on a property that meets the requirements of the BRRRR strategy. It’s a great way to quickly analyze a potential deal, which begs the question: What is the BRRRR method formula?

The BRRRR formula is more simple than people realize. Investors only need to plug the ARV into the BRRRR method formula to determine how much they can spend on a deal. The BRRRR method formula looks like this:

Total Investment = ARV x 75%

To illustrate the formula, when analyzing comparable properties and estimating a property's ARV to be $100,000, it is crucial to ensure that your overall investment in the deal does not exceed $75,000.

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BRRRR Method Example With Numbers

Let’s say; for example, investors come across a property they want to add to their BRRRR portfolio. The home is estimated to have an after-repair value of $500,000. Instead of arbitrarily spending on the home, the investor must run the ARV through the BRRRR method formula, which looks like this:

$500,000 x .75 = $375,000

In this example, the investor shouldn’t spend more than $375,000 on the subject property if they want to optimize it for the BRRRR strategy ad add it to their portfolio.                                                  

What Are The Advantages Of The BRRRR Strategy?

The BRRRR method has become synonymous with several benefits, not the least of which include:

• Optimize Returns: The BRRRR method’s unique approach to maximizing profit margins can optimize returns during every stage of the process. Investors will find that, when done well, the BRRRR method can provide both cash flow and (in the proper market cycles) appreciation.
• Recycle Captial: With the right lender and underwriting, BRRRR method investors can recycle the cash they receive from a cash-out refinance to compound their profit potential by adding subsequent properties.
• Long-Term Walth Creation: Constant repetition of the BRRRR method can result in a leveraged portfolio of cash-flowing properties, all paying down their mortgages with other people’s money. As a result, investors are benefiting from long-term appreciation and monthly income.
• Appreciation: While it’s never safe to assume real estate will appreciate, history suggests real estate assets appreciate over time. Therefore, while there are certainly some years where appreciation won’t take place, there’s a good chance the assets will increase in value over time.
• Cash Flow: Using a BRRRR calculator, investors should be able to build a portfolio of cash-flowing properties that compound operating income with each additional acquisition.
• Diversification: The BRRRR method relies on building out a portfolio of cash-flowing properties. Consequently, each additional property further mitigates risk and diversifies investors’ holdings.                                                                

How Can I BRRRR With No Money?

Real estate investing is costly, with most purchases and down payments representing the most significant expenditures in anyone’s lifetime. Only a select few can purchase a property for their BRRRR portfolio with their own money. It is worth noting, however, that investors don’t have to pay for the properties out of their own pockets. There are, in fact, other investors who are willing to invest in real estate investors, giving them the capital they need to execute a deal.

Otherwise known as private money lenders and hard money lenders, these investors will lend the capital BRRRR investors need to build their portfolios. In return for higher-than-average interest rates and points, BRRRR investors can get loans from private and hard money lenders. These loans can be used to acquire and renovate properties, making them suitable for implementing the BRRRR strategy.

To be clear, investors will need to factor the cost of these loans into their free BRRRR method calculator. Nonetheless, a private or hard money loan can increase the odds of securing a deal, which is worth the added cost.

While taking into account the cost of these loans is essential when using the BRRRR method, remember there are ways to step into real estate that don't require a large initial investment. For a deeper understanding of how you can navigate this, be sure to watch our video on "How To Get Into Real Estate With NO MONEY!" It provides valuable insights and strategies to help you make that crucial first step.

Read Also: Hard Money Lenders 101: What Are They & How To Find Them

Is The BRRRR Strategy Worth It?

The BRRRR method has the potential to be a highly effective and profitable exit strategy for long-term real estate investors. That said, whether or not this particular strategy is worth investors sending their time on depends on various factors and individual circumstances.

Here’s a list of considerations to help investors decide if the BRRRR method is suitable for them:

• Market Conditions: The viability of the BRRRR method is directly correlated to current market conditions. As a result, investing at a time when rental property demand is high, and home prices are appreciating can make the BRRRR strategy easier to execute and more worthwhile.
• Available Financing: Financing changes with market conditions, which means investors will need to be conscious of the types of financing they can get. Consequently, access to favorable funding will go a long way in making the BRRRR strategy a viable option.
• Personal Goals: For the BRRRR method to be worthwhile, it must align with investors' personal goals. Investors with long-term goals will find this strategy more favorable than traditional flips.
• Risk Tolerance: Not unlike every other investment strategy in the real estate sector, the BRRRR method coincides with an inherent level of risk. Investors must be comfortable with risks like market fluctuations, property taxes, renovation delays, tenant vacancy rates, and potential interest rate changes.
• Personal Experience: The BRRRR method isn’t necessarily an entry-level investment strategy. Investors must be comfortable navigating several rental properties or at least work with a mentor who can guide them through the process.
• Available Time: The BRRRR method is a reasonably involved strategy. Buying, rehabbing, renting, and refinancing are all time intensive. Combining them can take up a lot of investors’ time, so they need to ensure they have the time to do everything necessary.                            

Final Thoughts On BRRRR Method Calculators

The BRRRR method has developed a reputation for helping real estate investors maximize returns and build long-term wealth. The unique convergence of property acquisition, rehabilitation, rental income, and refinancing lets investors leverage their assets to build larger portfolios and compound returns.

To enhance the benefits of the entire process, however, investors should learn how to calculate BRRRR strategies. Understanding how to use the BRRRR calculator can help investors evaluate deals more precisely and make more informed decisions, which is invaluable in today’s competitive marketplace.

At Real Estate Skills, our team of experts is ready to provide the tools you need to build a cash-flowing portfolio with the BRRRR method. We're committed to providing the knowledge, resources, and support you need to navigate each step along the way successfully. So avoid common mistakes and maximize your returns by leveraging our expertise.