The BRRRR Strategy

When it comes to real estate investing, choosing the right financing can be the difference between success and failure. For BRRRR investors looking to scale quickly, the choice between hard money loans and traditional financing is crucial. The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) requires fast access to capital, making hard money loans an ideal option for distressed property purchases and renovations. While traditional financing is often preferred for long-term holds, hard money loans provide the speed and flexibility needed for the initial stages of the BRRRR strategy.

In this article, we’ll compare hard money loans and traditional financing, explain how both can support BRRRR investing, and highlight why One West Hard Money is the go-to lender for BRRRR investors.

What Is the BRRRR Method?

The BRRRR Method is a proven strategy for building wealth in real estate through the purchase, rehab, rental, refinance, and repeat process. Here’s how it works:

1. Buy: Acquire a distressed property at a discount, often needing renovation.
2. Rehab: Renovate the property to increase its market value and make it tenant-ready.
3. Rent: Rent the property to generate steady cash flow.
4. Refinance: Once the property’s market value has increased, refinance it using a cash-out refinance or a DSCR loan (Debt Service Coverage Ratio loan).
5. Repeat: Use the funds from the refinance to acquire your next distressed property and start the cycle again.

The BRRRR strategy allows investors to recycle their initial capital into new deals, making it a powerful tool for scaling a real estate portfolio.

How Hard Money Loans Fit Into the BRRRR Method

Hard money loans are short-term, asset-based loans provided by private money lenders or companies like One West Hard Money. These loans are based on the after-repair value (ARV) of the property, rather than the borrower’s creditworthiness. Here’s why hard money loans are perfect for BRRRR investors:

• Buy: Hard money loans provide quick access to capital, allowing you to secure distressed property deals fast—before competitors can swoop in.
• Rehab: Since hard money lenders focus on ARV, they provide sufficient funds to cover renovation costs and increase the market value of the property.
• Refinance: After the property is rehabbed and rented out, the increased market value makes it easier to refinance through traditional loans or DSCR loans.

Hard money loans are essential for executing the fast-paced, short-term nature of the BRRRR strategy.

Comparing Hard Money Loans to Traditional Financing

1. Speed of Approval

• Hard Money Loans: Hard money lenders can approve loans in days, which is critical when purchasing a distressed property before other buyers. This fast approval is key in competitive markets where timing is everything.
• Traditional Financing: Traditional loans can take weeks or months to process, making them unsuitable for the fast-moving nature of BRRRR investing.

2. Loan Terms

• Hard Money Loans: These loans are short-term (6-24 months), designed to help you buy and rehab properties quickly. Many hard money lenders offer interest-only payments during the rehab phase, easing cash flow concerns.
• Traditional Financing: Offers long-term (15-30 years) fixed payments, making it ideal for stable, long-term rentals but not for the short-term BRRRR investor.

3. Eligibility Requirements

• Hard Money Loans: Approval is based on the ARV of the property, making it accessible for investors with less-than-perfect credit. This flexibility is crucial when dealing with distressed property purchases.
• Traditional Financing: Requires good credit, stable income, and a lengthy application process, making it difficult for some BRRRR investors to secure financing for distressed properties.

4. Interest Rates

• Hard Money Loans: Hard money loans typically have higher interest rates (10-15%), reflecting the higher risk and short-term nature of the loans. However, these higher rates are often worth the speed and flexibility.
• Traditional Financing: Offers lower interest rates (3-6%), making them more affordable for long-term rentals, but they come with slower approval and stricter requirements.

5. Loan-to-Value Ratios (LTV)

• Hard Money Loans: Typically offer 60-80% LTV based on the ARV, which ensures the loan is based on the potential value of the property after repairs. This may require a larger upfront investment but offers flexibility for investors in need of quick funding.
• Traditional Financing: Conventional loans offer higher LTV ratios (up to 97%) but are typically based on the property’s current value, not the ARV, and may not cover renovation costs.

The Role of DSCR Loans in BRRRR Investing

Once you’ve completed the rehab and secured tenants, DSCR loans become a valuable tool during the Refinance phase of the BRRRR Method. Unlike traditional loans, DSCR loans focus on the property’s rental income to determine the loan’s eligibility, rather than the borrower’s credit or income. This makes DSCR loans a great option for BRRRR investors who have stabilized a property and are looking to refinance it based on its cash flow potential.

Why Hard Money Loans Are Essential for BRRRR Investors

Hard money loans are a crucial tool for BRRRR investors because they:

• Enable Quick Purchases: Hard money loans allow investors to move fast, purchasing distressed properties before they’re snatched up by competitors.
• Cover Rehab Costs: Hard money loans are based on ARV, ensuring that investors have enough funds to rehab the property and increase its market value.
• Provide Flexibility: With flexible terms and quick approvals, hard money loans support the investor’s need for rapid turnaround, especially in competitive real estate markets.

Key Risks to Consider in BRRRR Investing

While the BRRRR Method offers great potential, there are several risks to keep in mind:

1. Renovation Costs: Unexpected repair costs can eat into your budget. Always conduct a thorough inspection before purchasing a distressed property.
2. Cash Flow Issues: If tenants aren’t secured quickly or if rental income is inconsistent, your property’s cash flow may not cover holding costs.
3. Market Value Fluctuations: The market value of your property can fluctuate, affecting your ability to refinance successfully or sell for a profit.

Why Choose One West for Your BRRRR Investments?

At One West, we specialize in helping BRRRR investors secure the capital needed to purchase and renovate distressed properties. Here’s why investors trust us:

• Fast Approvals: Get quick access to funding to seize distressed property deals before they’re gone.
• ARV-Based Lending: Borrow based on the potential value of the property after renovations, giving you the capital to rehab and increase its market value.
• Expert Guidance: Our team understands the unique needs of BRRRR investors and provides tailored lending solutions to ensure success at every stage.

Final Thoughts

The BRRRR Method offers a lucrative strategy for building a scalable real estate portfolio. However, successful BRRRR investing requires the right financing. While traditional financing is better suited for long-term rental properties, hard money loans offer the speed and flexibility needed for the Buy and Rehab stages. With the addition of DSCR loans for the refinance stage, BRRRR investors can unlock their property’s full potential.

Ready to fund your next BRRRR property? Contact One West today to explore our hard money loan options and start building your real estate empire.