If I had to use one word to describe this summer it would be BRRRR!
No, I am not crazy. I realize this has been one of the hottest summers on record. Around the world. But BRRRR has nothing to do with being cold. It’s a real estate strategy that my husband Bill and I have been super active in deploying this summer. OK …. Bill did most of the summer deployment as I spent August “working” from the cottage. But more about the BRRRR strategy…
BRRRR stands for BUY, RENOVATE, RENT, REFINANCE, REPEAT
BUY – The market has been a bit soft and we have been actively looking in secondary markets like Lindsay, Peterborough, and Cobourg for properties that offer good opportunities. They say in real estate that you make money on the buy. So, we have been looking for motivated sellers. The market has normalized now, and we are able to take our time, negotiate, and put financing and inspection clauses in for the most part.
RENOVATE – Specifically, we have been looking for properties where we can add a secondary suite and produce a cash flowing 2-unit dwelling.
RENT – We rent out our two units.
REFINANCE – once the renovation is completed, we bring back the appraiser and get the new value and are generally able to pull out our renovation costs.
REPEAT – And finally we repeat the process. We take out the refinance funds and do it all over again.
We like the BRRRR Strategy for several reasons.
* More cash flow – We love 2-unit properties because they have more income than single family homes
* Better price – Existing 2-unit properties will often go for a premium. And if you want to make money on the buy, this will be hard to do. Investors are not typically motivated sellers as properties are rented and cash flowing already.
* More choice – there are a lot more properties that can be converted to legal 2-unit dwellings on the market than there are pre-existing ones.
* Better condition– along with more choice and competitive prices you can often find new properties that are in much better condition that existing duplex options.
* Legal – In many cases existing duplexes are not legal. As a result, financing can be a challenge because the mortgage company realizes that at any point they can shut the basement unit down and your income has just dropped significantly. They are also harder to insure properly.
* Better choice of tenants – With existing 2-unit properties we must usually take on the existing tenants, which we did not pick.
* Higher Rents – Existing tenants often have below market rent values. Where as newer properties can command top rents.
Let’s look at some typical numbers