B-R-R-R-R Investment Strategy-Learn the Newest (oldest) Trend in Real Estate Investing
Updated: Sep 19
Rick Dimidjian President & Broker of Record
Camryn Ruby Director of Marketing & Business Development
20 July 2022
Whether you are new to commercial real estate or not, having a solid strategy for investing in commercial real estate is vital to your success. The BRRRR method is just one strategy, but it is arguably the best for a variety of reasons. The real estate investor can perform this strategy at every level of investing, from multi-family properties to the largest of commercial real estate investments. The BRRRR method is an acronym for Buy, Rehab, Rent, Refinance, Repeat. Each step in this investment strategy will guide you through the entire process and allow you to maximize your time spent on one property.
Buying the property is the first step in the BRRRR strategy. When you are searching for a property, the key is to buy an undervalued property. You, as the investor, must figure out why the property is undervalued. Some possible reasons could be the owner does not understand how much the property is worth. The property may also need to be rezoned or repositioned. Another reason why a property might be undervalued is that it has a high potential for a value-add component. When you make an offer, don’t be scared to go low, especially if the property has been listed for some time now. If you never make an offer, you will never get a deal. It is okay to negotiate back and forth until you are able to purchase the property under market price.
The next step in the BRRRR strategy for investors is rehab. In order to effectively rehab your commercial property, you must have your budget ready.
Then take time to walk through the property with your contractor, architect, engineers, leasing team and create a plan for what actually needs to be improved. It is crucial that you don’t over-rehab your property. Remember, you should only add value to the property in the eyes of a potential tenant/user, not your personal standards of owner-occupied space. So what rehabs are worth improving? Major fixes like roof and foundation will add value to your property. Also, it might be worth making the curb appeal nicer. Each property is unique so each investor is responsible for deciding what renovation aspects will increase their operating net income.
The third step in our strategy is to rent out the property. The most effective way of executing this step is to have a leasing and management team in place. A great leasing and management team will find you qualified tenants, quickly fill vacancies, and take many more tasks off your hands. The team will save you time marketing the space and touring tenants to pre-lease the space. During your renting step, it is important to recognize that you bought the property well below market, so you should be able to charge market rents after you have added value to your property. Now, why would you only charge market rent if your property has been rehabbed? In comparison to other properties similar to yours, your property will stand out to tenants based on the price and nice renovations. The faster you can lease the property, the faster you can begin refinancing and move on to the next project.
The refinancing step for commercial properties is based on net operating income through cap rates. Having quality tenants is extremely important for the refinance step. The higher your NOI is and the better-qualified tenants you have, the lower the cap rate your bank will place on the asset.
This will in turn give you a higher value on the property. In the BRRRR strategy, it is advised that you refinance your property as soon as it is stabilized. A normal way to know if your property is stabilized is if it has between an 80%-90% occupancy rate. Another tip when using the BRRRR strategy is to keep your numbers on the conservative side. The strategy will allow you to keep a cash flow and then pull all of the money out to move to the next project.
The main idea of this BRRRR strategy is to repeat the process: buy an undervalued property, only rehab areas that are necessary to add value, rent the property out to tenants so you can refinance the property, and then repeat this process in your next investment. A clear-cut strategy like this one will enable you to stay on task and not waste time with a single property. Investors can easily fall into the trap of investing too much time, money, and rehab into their property forcing them to miss out on other investment opportunities. Using the BRRRR strategy will keep your goals in check, guide you through the process, and leave you with a larger portfolio of properties.
Aegis Realty Partners Real Estate Investment specialists are well-positioned to advise our investors to seek out new real estate acquisitions as well as assist real estate investors when it comes to selling their properties. Aegis Realty Partners Property Management services manages thousands of square feet of commercial property
and over 1000 residential units, and there isn't a type of property that we are not familiar with.
If you or you know of any investor that needs assistance in choosing a property to invest or manage in we are willing to discuss our professional investment brokerage and/or management services. We are in constant communication with investors actively looking to buy, sell, and lease properties.
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