BRRRR is a real estate investment strategy that means Buy, Rehab, Rent, Refinance, Repeat. This method involves buying distressed property and making repairs to increase its value while making it rent-ready. Cash-out refinancing can be taken once the space is rented to provide funds to purchase another rental property.
Why BRRRR works well for PadSplit hosts
With PadSplit, the property will be rented quickly and have better returns than other rental models. PadSplit rentals have reduced vacancy costs, and a dedicated call center is used for resolving resident disputes. Converting the property into a co-living space during renovation allows the cost to be covered by the original bridge loan (fix and flip loan) taken to repair the distressed property.
Buy a property with high ARV
When searching for a property using the BRRRR strategy to convert into a PadSplit, consider the After Repair Value of the property — After Repair Value is the amount the property can be appraised for after fixes and upgrades. This amount will be significant when you refinance to obtain funds to purchase your next rental property. How much more will the property be worth when the repairs have been made? Purchasing the right property to convert into a long-term rental is key.
Rehab into PadSplit affordable housing
The rehab portion of this method involves upgrading and repairing the distressed property to make it rentable while improving its value. With PadSplit, this would also involve optimizing the space to include extra bedrooms. PadSplit uses under-utilized spaces to provide more rooms in existing areas. These additional bedrooms make hosts more money while providing affordable and flexible long-term housing in desirable neighborhoods.
Rent with PadSplit for high ROI
With PadSplit’s fast rental, high occupancy rate, and affordability for members renting is quick and hassle-free. Use this calculator to estimate how much more you can make when renting your property through PadSplit. The faster the rehab and rental of the property, the quicker the next step in the process can be completed. Pay attention to how long the original loan must “season” before you are allowed to refinance.
Refinance to fund your next investment
Now that the property is rented, you get to pull money out of your investment property to use for the next down payment! A lender will generally refinance the property at 75% of the ARV, allowing you to pull money out while leaving equity in the property. You not only get to make another investment, but your existing rental will have equity left in it if you decide to sell.
Repeat: Find a new property to purchase
With the money from the cash-out refinance, a new property can be found to convert into a PadSplit. With each property, your rental income will increase, along with the equity you have in your combined properties. With PadSplit’s better rental returns and 97% collection rate, your income will grow with each rental and be consistently collected.
Example of a cash-out refinance
1. Bridge Loan (fix and flip loan):
$200,000 house price – $20,000 down payment (lenders generally require a 10-20% down payment on these loans)
$180,000 loan on the house purchase + $40,000 to renovate (these loans allow up to 100% of renovation costs)
$220,000 total loan
2. Refinance to a 30-Year Fixed Loan
$243,750 (75% of $325,000 ARV Value) – $220,000 (Bridge Loan)
$23,750 available to purchase a new property
This shows the importance of the ARV when using the BRRR method. With smart research and purchases, your rental property portfolio can be increased again and again. Using PadSplit to rent out the properties increases returns, reduces vacancy cost, and makes it headache free.