Will the BRRRR Method of Real Estate Investing Still Work in 2023?
If you’re interested in residential real estate investing, you have probably heard of the Buy, Rehab, Rent, Refinance, Repeat (BRRRR) method. Like house-flipping, the BRRRR investment method focuses on buying properties that are not in good shape and fixing them up. But rather than reselling the renovated property for a one-time gain, you rent it out, getting income while building equity for your next purchase.
There is both good news and bad news about the BRRRR investment method. The good news is that the method does work, while the bad news is that both properties and the materials to fix them have become a bit expensive. This will affect the strategy’s purchase and repair by eating into your profits. Continue reading to learn more about how the method work in 2022 and what to expect in 2023.
Common BRRRR Approach
BRRRR investors find properties that are not in good shape and try not to pay more than 70% of the ARV (After Repair Value) of the house minus the renovation cost. The approach will work like this, based on a $300,000 asking price of the property, you discover you need to invest $35,000 for rehab. After rehab, the property will now be valued at $375,000, which is its After Repair Value. This means that you invested $35,000 to add $75,000 in property value.
A New Approach
It’s impossible to buy a property in the current market at 70% After Repair Value. Hence, you will need to figure out if purchasing a property at a higher price will still be profitable. Again, labor and material will likely cost not less than 25% in today’s inflationary times.
So, Will the BRRRR Method Still Work in 2023?
Yes, because there are some factors to consider, the refinance and rent part of the BRRRR. Rent across the United States has skyrocketed over the years, with some cities experiencing up to a 40% average price increase. You just need to research the rents for areas where properties cost around $375,000. Chances are you’ll get $3,000 per month in rent from a property you bought for $344,000, which is a good deal.