The New (Better) BRRRR Method: Less Risk, More Cash Flow

0:00Do BRRRRs still work in 2025? It's been one of the most tried and true investing formulas over the last couple of years. You buy a property, you rehab it, you rent it out, then refinance your cash back out, and you repeat the process. But with higher home prices and higher interest rates today, some people say the burr is dead. Today, we're making a ruling on that question.

0:27Hey, everyone. I'm Dave Meyer, a rental property investor and the head of real estate investing here at BiggerPockets. And with me today on the podcast is my friend, Henry Washington. Henry, how's it going? What's up, bud? Glad to be here. I'm glad to have you because I saw this question on the BiggerPockets forum, and I wanted to break it down with you specifically. You've done a lot of BRRRS, right? Oh, yeah. Good. I figured you have, so you are the right person to help me break this down. I've also done several BRRRS in my investing career. I think it's a great strategy, or I should say, It has been a great strategy for me in the past, but we're going to talk about if it's still a great strategy going forward.

1:06So a community member posted on the BiggerPockets forum, a community member named Kyle, asked, and I quote, I'm curious what people are seeing for leverage on brewer acquisitions. Has anyone successfully acquired, rehabbed, and refied a deal with less than 20 % of their own cash in? I'm not trying to over leverage, just exploring what's realistic in 2025. So let me just explain this question a little bit, and Henry, feel free to jump in here. Kyle is referring to the BRRRR strategy, which if you've never heard it before, it stands for buy, rehab, rent, refinance, and repeat. It's basically an approach to real estate where you're buying a rental property, that's the B.

1:46Then what you're doing is rehabilitating it, that's adding value. You're taking a property that needs to work, you're putting that love and that effort into it to boost your equity. Then once you're done with that project, you rent it out to new tenants. Hopefully you pulled it up to market rents and are generating good cash flow. And at that point, you refinance. So you can take some of the equity that you have built in this property, some of the equity that you've put into this property, and use it for future acquisitions. That's the last R, the repeat part of it. And this has become a very popular strategy over the last 10, 15 years because it's a great way to scale your portfolio.

2:25If you're able to execute this in a short timeline, you can do a renovation, build equity, get a cash-flowing rental, and then have the same amount of money to go buy the next one. But as interest rates have gone up, properties have gotten more expensive, it's gotten a little bit harder. And so what Kyle is asking is, is it still realistic to be able to use the BRRRR strategy to grow and scale? Or perhaps is there a better approach that people should be using? So it's a question you should be asking right now. So anyway, I'm just going to ask you, have you done this? Yes, I have done this. But the caveat is, as far as a real estate investor goes, I would consider myself a professional real estate investor.

3:04It's what I do for a living. And finding deals is what I specialize in. And so for someone like me to say yes to that question doesn't mean it's a viable strategy for most casual real estate investors, if that makes sense. It does. It's important to point out, and one of the reasons it's great to have you here is like, Henry does this full-time. He's acquiring deals all the time. He's doing off-market deals. He does heavy rehabs. What he can accomplish is totally different from what I get and what I look for because I work full-time. I'm not someone who's going to job sites every day. I'm not doing direct-to-seller marketing.

3:39So I do think this is perfect because we can have two different perspectives on this. So maybe let's start with you and I'll tell you my side of things. For you as a professional, is this normal or are you getting these but not every deal pencils out this way. So it was a whole lot easier to find deals to BRRRR three years ago. We still find them now, but less frequently. Flip numbers tend to make more sense in this market than rental numbers. But because we're looking for deals in volume and we're finding deals in volume, every so often we get one that makes a great BRRRR. And then I think you have to put some parameters around BRRRR, mostly like a timeline.

4:21Because you can buy, renovate, rent, and then refinance in a short period of time, or you can do it in a much longer period of time. I've refinanced multiple properties this year and pulled cash out of them when I bought them three to five years ago. And I just put them on adjustable rates and that adjustable rate now came due, I refinanced it into a 30-year fixed and pulled cash out. And those long-term BRRRs are still BRRRs. Henry, that's a great point. I think it's a really important caveat because I've been calling it the delayed BRRR or people in YouTube gave me new ideas of what to call it because I suck at this, but I couldn't come up with a better name of it.

5:04We'll call it the delayed BRRR. But I think there's two different things that you can do. One thing I've been doing is delaying the renovation. You buy something that's actually fully occupied rather than vacant and not trying to do the burr on this flip timeline. Because like, as you said, there is this approach to doing the burr method, which is like, I'm going to do this in six months or whatever. I'm going to get in there. I'm going to renovate it quickly. I'm going to get rents up to market rate. Then I'm going to do this cash out and I'm going to go acquire the next deal really rapidly. And that did work really well for a while.

5:36I think it's hard to line up two deals. Like you're saying, I can't do it right now, realistically. But even you, Henry, it sounds like it would be hard to even line up to BRRRRs in that timeframe where it would even be advantageous for you to even do that. And so what you could do is either take sort of the more delayed approach, which is getting the occupied units and opportunistically renovating when there's time, or doing the renovation up front, but not refinancing until you need the capital. I'm actually looking at refinancing a deal I bought like six years ago because it's cash flowing well.

6:12But like I think that there's going to be good deals coming and I'm seeing more deals coming and I just might want to free up some capital. And so I'll just do the refinance, but it's way later. Yeah. I think when when Burr was originally pitched, it was pitched as a way to scale a real estate business because you could line up back to back Burrs and you could repeat this process and you can still repeat it. I think the timeline for the normal investor is just going to be longer. I think that's right. There is this assumption in this question, and I get this question all the time. I'm sure you do too.

6:45Like, do BRRRRs work? Is it dead? There is this assumption that the only reason to do a BRRRR is that you can refinance 100 % of your capital. Full BRRRRs. You got a full BRRRR. Right, exactly. You need the quote unquote perfect BRRRR or full BRRRR. But that is not that common. Maybe if you're doing Henry's kind of deals and you're in the right market at the right time, that can be common. But I think if you just kind of like reframe the conversation and don't assume that you need to take 100 % of your capital out, then I would say BRRRR is absolutely still a way to grow your business. You're still able to refinance some of your money out.

7:24And you're buying, ideally, if you're doing it right, a cash-flowing rental property that you've built equity in. You're getting some of your money out of it to go scale again. that's still a win, even if it's not perfectly super 100 % recycling of your capital like it was for that brief moment in time. Can I give you a hot take? Yes. That's why you're here. Even when BRRRRs were easy to do, I didn't really like doing them. Really? Why? I didn't like pulling my cash out. I liked the cash flow. That's the other thing. Yeah. When you refinance a deal, essentially what you're doing is you're getting a new loan at a higher amount.

8:03And that new loan at a higher amount comes with a mortgage payment. And that mortgage payment is going to be higher than the previous one, because now it's a higher mortgage. When you get a new mortgage, they front load the interest in the first five to seven years. And so most of your payment is going to interest. And so you put this money in your pocket. And a lot of people, especially the casual investor, may not have had the next BRRRR lined up, they pulled the cash out of their last BRRRR, and then they blow a chunk of it before they get to their next deal. And then that kills the, like, it kills the purpose.

8:38What I was doing and what I still like to do is instead of refinance, I just get access to a line of credit on that equity. And then that way I don't get a new loan at a higher amount. I keep my lower mortgage payment, which keeps my cashflow. And then I have access to the money in the event I need it instead of just pulling it out and starting to pay on a new loan and then not spending that money wisely. Yeah, because that's a great point. If you don't immediately reinvest your capital that you pull out, you're essentially just reducing your cash flow for no reason. That to me is a really important thing.

9:11All right, this is a great conversation and we have a lot more of it, but we do have to take a quick break. We'll be right back. They say real estate is passive income, but if you've spent a Sunday night buried in spreadsheets, you know better. We hear it from investors all the time, spending hours every month, sorting through receipts and bank transactions, trying to guess if you're making any money. And when tax season hits, it's like trying to solve a Rubik's Cube blindfolded. But that is where Baseline comes in, BiggerPockets' official banking platform. It tags every rent payment and expense to the right property and Schedule E category as you bank.

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13:29Welcome back to the BiggerPockets podcast. I'm Dave Meyer here with Henry Washington talking all things BRRRR in 2025.

14:01buy a property, you renovate it, you rent it out. Now you have this option. I can refinance it, right? And pull cash out, whatever I put into it, maybe plus some, and then I could go do my next deal or you can get a line of credit. And the way the line of credit works is similar to a refi. If you go and do a refi, whatever bank you're going to do the refi with is going to appraise that property. And then it should, you know, theoretically appraise for more than you have into it. So for more than you've purchased it, plus you put in to renovate it. So if you bought it for a hundred, you put 50 in it and it appraises for two 50, you should be able to refinance all of your money out because that appraisal value is higher than typically whether they want like 75%, 80 % loan to value.

14:45And so you should be able to pull all of your money out. The HELOC method is very similar. You would just go to a bank and say, you want to take a line of credit out on the equity you have in your property. That lender would then order an appraisal. Let's say the appraisal comes back at 250 ,000, the way the line of credit would work is they will give you access to 75 % of the equity. And so if the appraisal comes back at 250 ,000, you bought it for 100, you put 50 in it, you owe 150. That means you technically have about$100 ,000 of equity. And if they give you access to 75 % of that equity, that means you should get a line of credit for around$75 ,000.

15:25And then what the way that line of credit works is you don't pay anything interest wise, as long as you haven't used any of that money. So now what that means is you now have access to that money. So if I need that money tomorrow, I can get access to that money tomorrow. I can just tell the bank, Hey, I need access to$20 ,000 for a down payment for a property. They literally drop it in your account that same day. And so you have liquidity because you have access to that money, but you don't have to pay any interest on that money unless you use it. And you only pay interest on the money you use.

15:58And so if I have access to 75, but I only need to use 25 and I have a 6 % interest rate on that HELOC, that means I'm paying 6 % interest on the $25 ,000 that I have taken out of my line of credit. If you refinance it, you're essentially paying interest on all of that money immediately because it's rolled into your monthly payment. Yeah, it just gives you optionality, which is a really, really nice thing, especially if you don't know exactly what deals you're going to use next or how you want to use the money. Like sometimes you might want to use it to fund a down payment, but other times you may want to use it to fund a rehab or do something else with the money.

16:33And again, when we're going back to looking at the times when people were really loving the BRRRR strategy, a lot of people were using short term loans to get into properties. And so they would use something like hard money or private money with a high interest rate to buy that property and renovate that property. And so then they're left with only one option is you've got to refinance that to pull that cash out and pay back those lenders because you don't want to be stuck in a note with a 12 or 13 percent interest rate. That's exactly right. That strategy is much tougher now because it requires you to find a phenomenal deal so that you can complete a full burr.

17:10And I think if you're just a casual investor, that's something you need to be cautious of. If you're going to buy a property, you can find a property to burr, but you got to be careful how you purchase it. You probably don't want to use high interest money to get into the deal, because what if you don't get that appraisal on the back end? What if your value doesn't come back what you thought it was? Now you're stuck in a loan with high interest that you can't get out of unless you pour even more of your own capital into that refinance. That's such a good point. The longer I am in this industry and do deals, it's like the debt is really what tells you.

17:48It's a killer, man. The debt is basically, yeah, if you succeed or fail on a deal. It's so much like how much you choose to finance strategically. But what Henry said is so important. I'm going to just representing the sort of casual investor. And I do a fair amount of deals, but I work full time. Like I'm not going out and doing what Henry is doing. And as someone who does that, like to me, I really like optionality. I don't like putting myself in a situation where I have to go refinance this or I have to finish a renovation in six months. I have other stuff to do. You know, like I can't be on that kind of timeframe.

18:23And so that's why I sort of like this delayed burr. If you do this thing where you get an occupied home, you can typically, in my experience, always get a conventional mortgage on it. And that's so valuable. You still have to put 25 % down if you're an investor, but you can go get a six and three quarters loan in today's day and age, maybe a 7 % loan in today's day and age. I would only buy that deal if it cash flows like that. Day one, I buy it 7 % conventional loan with the current rents. They would need to be cash flowing. I need this to be at least positive cash flow. It doesn't need to be great cash flow.

19:00I think that's sort of the thing that Henry and I were arguing with James about on the market the other day. But like, I would buy that at 2 % cash on cash return, knowing that the rents are under market rate, and that when my tenants choose to move out, I'm going to renovate that and I'm going to get it up to an 8 or a 10 or ideally a 12 % cash on cash return. That's what I'm looking for. I am okay if that period of stabilization takes me a year. I'm fine with that because I have that six or 7 % interest rate. That is the difference because I am building equity. I'm getting the tax benefits. I'm doing all that, but I'm not under pressure to go refinance some hard money loan that I would have gotten if I was going to try and do this sprint bird that Henry's talking about.

19:46You know what that's called? What you just described? What? It's called real estate investing. Yeah, exactly. It's not burn. This is just like red and butter boring. I say that as a joke, but it's a testament to like how spoiled we've been to have gotten in the game. That's right. Like for me, I got in the game in 2017 and in 2017, things were about to get great in 2020. Right. Like COVID aside, what it did for real estate was crazy. And so you didn't have to put as much thought. I know that sounds bad, but it's true. You didn't have to put as much thought and strategy into real estate investing because the market was going to save you.

20:26If you just bought something and you waited for a little bit, you were going to be in a better position. And so you didn't have to be a strategic. You didn't have to plan out a long term. You could just do it in three to six months and you were going to be great. Like now the market is requiring more of us. The market is requiring us to be more educated. The market is requiring us to be more prepared before we jump in because the market's not saving you anymore. You've got to save yourself with your strategy. You have to save yourself with your planning. You have to save yourself with understanding how to pivot and you have to save yourself with managing your portfolio throughout its life cycle.

21:09Those weren't things you really had to pay attention to before because you would just go, yeah, my portfolio is good. It was good back then. It's better now. Keep on trucking. Right. Like it's not that way anymore. Oh, it's been a week. It's it's worth five percent. Perfect. Everything's going well. I think what you're saying is so right. What we need to do as an industry is a shift of expectations. It's not like real estate is no longer good. And the reason I liked this question in the forums and I wanted to bring it and talk to you about is like Kyle is asking, what should his expectations be in 2025?

21:42And that's a great question that everyone should be asking themselves because so many folks are comparing to 2020 and saying, oh, my God, you can't do Burr anymore. It's like, well, you could buy a lot of deals right now that will improve your financial situation a lot that will really help you, in my opinion, more than any other asset class. Is it going to help you as much as this Goldilocks period in 2020 when every damn thing went right for real estate investors? No. And that literally may never happen again. I know people say, oh, rates are going to go down. It's going to go crazy again. I don't know.

22:20I don't think it might never happen again in our lifetimes. I really mean that. And that's fine. I've said this before, but I really mean it. We didn't have those conditions in the 70s, the 80s, the 90s. Real estate was still a great business. People still made money. They just had appropriate expectations and adjusted their strategy accordingly. And that's why when I'm talking about this delayed burr, it might sound like super boring to people, but this is just bread and butter. It's just real estate, bro. Super low risk, still has a high upside, right? It's just bread and butter, not doing anything fancy.

22:54I go to these conferences all across the country all the time when I get asked to speak. And inevitably like, you know, a hundred different people who are there, you know, whether they know me or not, they'll say, Oh, so what do you do? And I always like, it's always like, I just, I buy houses and then I fix them up and then I either rent it out or I sell it. And then I was like, Oh, that's cool. I'm like, yeah, yeah. It's super boring. Like I just do regular boring real estate. I'm not doing some fancy boutique hotel. I'm not doing some$4 million dollars short-term rental. I'm not buying things on some super creative, fancy financing strategy that's brand new.

23:36I just buy houses and then I fix them and then I rent them or I sell them. And that's worked long before I ever invested in real estate. And that same strategy will work long after I'm done investing in real estate. And I am a-okay with that. Well, I want to get back to the birthing here because you mentioned something earlier that I think is a super important topic. You said that you weren't a fan necessarily of the BRRRR even when it was sort of this perfect time to do it because it reduces your cash flow. And I honestly have thought about that too. And I've done that in the past when I've refinanced a BRRRR or just a property I've owned for a while, whatever, when I've refinanced, I don't always take out max leverage.

24:18Yes, I don't either. And that was even true during a time when people were benefiting for max leverage. And what I mean by that is a lot of times when you refinance property, if you go and do a burp, basically you'll have to leave a certain amount in, like you're getting a new mortgage, right? And so you essentially have to keep an amount in that is equivalent to what a down payment would be. So for most investors, that's 25 % down. So if you refinance it, it gets appraised at$400 ,000. You have to keep$100 ,000 in equity into that deal. Of course, you have to pay off your own mortgage, but during this process, the bank will tell you the most amount that you are able to take out.