The BRRRR Method (Buy, Rehab, Rent, Refinance, Repeat) is widely considered the most powerful strategy for building a real estate portfolio with limited capital. By forcing appreciation through renovations and then refinancing to pull your cash back out, you can theoretically acquire an infinite number of properties using the same initial seed money.
Step 1: Buy (The Most Critical Step)
You Make Money When You Buy
You cannot pay retail price. You must buy distressed properties at a discount. Use the 70% Rule to determine your maximum offer price.
The goal is to buy a property that, once renovated, will be worth significantly more than your total cost (purchase price + renovation cost). This equity spread is where your wealth is created.
Step 2: Rehab (Force Appreciation)
Calculated renovations are key. You aren't building your dream home; you are building a durable, rentable asset.
- Focus on High ROI: Kitchens, bathrooms, flooring, and paint offer the best return.
- Don't Over-Improve: Making a house the nicest on the block doesn't mean it will appraise for more than the neighbors. Know your market.
- Code Compliance: Ensure all work is permitted and safe. Unpermitted work can kill your refinance.
Step 3: Rent (Stabilize the Asset)
Before a bank will refinance the property, they typically look for "seasoning"—often 6 months of ownership—and a signed lease. Screening tenants is crucial here; a paying tenant proves the asset's income stability to the bank.
Step 4: Refinance (The Payday)
This is where the magic happens. You go to a bank to get a new long-term mortgage based on the new, higher appraised value of the property (ARV).
Banks will typically lend up to 75% of the appraised value (LTV). If you bought and rehabbed correctly, this loan amount should be enough to pay off your original purchase costs (or hard money loan) and your renovation costs.
Step 5: Repeat (Scale Your Portfolio)
If executed perfectly, you now have:
- A cash-flowing rental property.
- Significant equity cushion (25%).
- Your original cash back in your pocket.
Now, you take that recycled capital and go buy the next property. This velocity of money allows for exponential growth.
Real-World Example
| Purchase Price | $100,000 |
| Renovation Cost | $40,000 |
| Total Investment | $140,000 |
| New Appraised Value (ARV) | $200,000 |
| New Loan (75% of ARV) | $150,000 |
| Cash Back To You | +$10,000 |
In this scenario, you own the property for $0 out of pocket (actually getting paid $10k) and still have $50k in equity ($200k value - $150k loan).
