The BRRRR method — that’s buy, rehab, rent, refinance, and repeat — has been Adam Craig’s bread-and-butter strategy for real-estate investing over the last decade.
He’s used it to grow his portfolio to 30 residential units, which he says is worth $5 million and generates a monthly income of over $18,000.
The strategy is fairly straightforward. He buys a beat-up property, fixes it up, rents it out to a tenant, gets the property reappraised by a bank, and then takes the excess value he’s created and uses it to buy another property and do the same thing. When Craig started investing, he used his own money to fund the purchases and rehabs. But to scale up more quickly, he started using a hard-money lender, which charged higher interest rates but was easier to secure loans from than a bank.
Keep in mind that rates are now higher across the board. The average mortgage rate has more than doubled since then, meaning that refinancing is not an attractive option for people who locked in much lower rates.
To demonstrate exactly what costs go into a BRRRR, we’ve outlined the specific details of one of Craig’s deals below. He previously documented the numbers on Instagram, and shared additional transaction and rehab records with Business Insider.
From $42,500 to $148,000
In 2020, Craig purchased a property on the outskirts of Cleveland, Ohio for $42,500, according to a settlement statement. After taking stock of what needed to be updated in the house, he figured he would need $38,000 for new kitchen parts, new bathrooms, interior and exterior paint jobs, and new flooring. So he went to his hard-money lender and borrowed $88,000 at an 11% interest rate, enough for the purchase and the rehab.
That means that during the time that Craig was rehabbing the property, he was on the hook for the $1,339 in monthly payments, broken down as follows:
Craig said the rehab took him seven months to complete, meaning he had to pay $9,373 out of pocket before he could put a tenant in the property. By this point in his investing journey, Craig had excess cash flow coming in from many other properties, which could cover his costs.
When the rehab was done, a bank appraised the property for $148,000, Craig said — almost triple what he had bought the property for, and $60,000 over his total costs for the purchase and rehab.
The bank allowed Craig to refinance 75% of the property, so he pulled out $103,000 of the property’s equity in cash. This allowed him to pay back the $88,000 hard-money loan. After several thousand dollars in closing fees, Craig was left with $7,000, he said.
While that’s not a huge payout in itself for several months of work, the real value came in Craig’s equity in the home and the cash flow it would generate.
With the new loan in place, here’s what Craig’s new monthly costs looked like:
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$526 for the bank loan
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$341 in property tax
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$46 in insurance
In total, that’s $913 per month. The $1,600 monthly rent generated from the new tenants (who would also cover utilities) would be more than enough to cover those costs.
After paying his loan, taxes and insurance, as well as setting aside $64 a month for potential repairs and vacancies, Craig had $623 in excess monthly cash flow.
While Craig has used the BRRRR throughout his whole investing career, he said it’s riskier strategy today given that home price growth is much slower — and even negative in some parts of the country — than it was in 2020 and 2021. That means it’s harder to get the appraisal you would need to offset the costs of repairs and a short-term loan, he said.
“I think appraisals are being conservative because the market went up so high, so fast,” he said.
This also puts first-time investors more at risk, given that they may run into unforeseen repair costs, Craig told Business Insider.
“In general, if you’re getting a property that’s way below market that’s a BRRRR property, the risks should be less because you have a lot more wiggle room,” he said. “But for a new investor who doesn’t know the ins and outs of the rehab, the risk level goes up because if you do run into some expensive unforeseen issues, you’re going to lose money or leave money in the deal when it comes to the refi.”
Instead, Craig said new investors should pursue a safer strategy to start, like house-hacking, which means renting out a part of the property you own and live in to a tenant.
