Using Maryland Hard Money Lending to Cash in with BRRRR Investing
The rental industry is continuously evolving, with tons of emerging lucrative investment strategies. One strategy used by investors is called the BRRRR method. This method encourages investors to buy, rehab, rent, refinance and repeat. But how can this investment strategy pay off for you? Keep reading as we review how you can cash in with the BRRRR method.
What Is BRRRR Investing?
As stated above, BRRRR stands for buy, rehab, rent, refinance, and repeat. This type of investment strategy helps landlords focus on buying undervalued units, make smart rehab choices, earn a profit, and cash out in the end. The idea is to increase the property’s value, so you can refinance and cash out the equity.
Let’s take a deeper look at each step of this investment method.
- Buy
- Rehab
- Rent
- Refinance
- Repeat
Buy
The first step in the BRRRR method is buying a property. To maximize this strategy, buy a house or rental property at a discounted rate. That said, it’s important for investors to carefully choose a property with a good combination of rental value, low expenses, and ROI potential.
Additionally, figure out how you’re going to pay for the property. For many fix-and-flip properties or BRRRR properties, investors use hard money loans. Hard money loans are easy to obtain and faster to pay off. However, make sure you find a reputable hard money lender before taking out a loan.
Rehab
Rehabbing the property is one of the most important steps. It’s crucial to make repairs that won’t break the bank but will increase the property’s value. For landlords, the goal is to appeal to a wide range of prospective renters. So, making neutral, classic upgrades that anyone will enjoy is important. This isn’t the time to make bold or overstated design choices since it could narrow your tenant pool.
Remember that if major structural repairs are necessary, like a bad roof or foundation, the costs of renovating the property can put a dent in your profit goals. As such, depending on your appraisal, these types of renovations can make or break a deal on a property.
Rent
If you want to make money on your investment, you must find quality tenants to rent it out. After all, renting provides cash flow that allows you to profit from your investments. Additionally, experts can appraise your property higher in the refinance stage if you have tenants.
To find tenants, you have to market your property. First, look at the local market and compare properties, prices, amenities, etc. Setting the proper rental rates from the start is crucial in finding tenants that are interested in the property.
While searching for tenants, remember that vacancy costs money, and higher rent prices don’t always mean higher profits. After all, you don’t want to sit with an empty property and lose out on profits because your rates are too high.
Refinance
Once you have a quality tenant in place, it’s time to wait until you build up your equity in the property. Then, when the time is right, you’ll refinance the loans you took out to rehab the property once the repairs are done. Since you renovated the property, the value should be higher, resulting in higher profit margins.
Once you’ve sold the property, you can use your earnings for your next fix and flip property. With that, if you need cash fast, you can take out a hard money loan, which gives you access to funds much quicker than a traditional loan.
Repeat
Using strategies like the BRRRR method can add to your business portfolio. So, the idea is to use your profits from your last property and use it to finance another fix-and-flip. However, unlike flipping the property to a new owner, you may want to flip it to the lender. This way, you’ll get the cash without paying sale taxes.
Next, let’s discuss starting the BRRRR method with Maryland hard money lending.
Starting BRRRR With Maryland Hard Money Lending
It’s important to note that BRRRR isn’t meant to make large profits from rehab projects. Instead, BRRRR investing allows aggressive growth with little to no capital. Overall, it’s an exciting way to grow your net worth and add to your rental portfolio.
Generally, once you’ve rented the property and it’s time to refinance, you can pull all of your funds out with little capital left in the deal. That said, using hard money at the beginning of the process is a strategy for scaling a business without personally supplying the down payment for the property.
Hard money loans can be used based on a property’s after-repair value. Then, in the “refinance” stage of BRRRR, your hard money loan will ideally be paid off and replaced by a longer-term loan from a bank.
Using Maryland hard money lending to finance your fix-and-flip investment is a smart way to get capital quickly. Additionally, getting approved for a hard money loan can be easier, speeding up your investment process even more. If you want more information about hard money loans, reach out to your local lender and ask how they can help.
Advantages and Disadvantages of BRRRR Investing
Like most investment methods, there are some pros and cons of BRRRR investing. After all, it’s important to do research to determine whether an investment strategy is right for you. Here are some of the pros and cons for investors to consider.
Pros of BRRRR Investing
- Improved Property Condition- Once renovations are complete, property owners can better determine maintenance needs and costs much more easily instead of having an overwhelming amount of repairs.
- Finance Renovations- Most hard money lenders help investors by financing 100% of the renovation costs. However, talk with your lender since some investors may need to pay the money upfront, then be reimbursed later.
- Appreciation and Equity- Renovating a property means that investors can buy it at a discount. Once the renovations are done, appreciation and equity follow.
- Cash Back- Landlords can pull cash of up to 100% or more of the property’s value when refinancing based on the after-repair value.
Cons of BRRRR Investing
- Potential Risk- Banking on favorable appraisals can be risky. Additionally, short-term financing can be expensive, especially if your loan is due before long-term financing is secured.
- Overleveraging- To avoid threatening your positive cash flow, avoid taking out too much equity from your property.
- Added Costs- Refinancing a property means you’ll need a new loan, a new lender, and new fees. If you know you’re about to refinance, look around for the lowest rates and plan for these added costs.
- Rushed Decisions- The excitement of lucrative financing can cause some investors to make rushed decisions. However, it’s important not to rush through repair choices, tenant screening procedures, and refinancing options.
Get Started With a Maryland Hard Money Lender Today
Looking to get started with a BRRRR investment? Exploring Maryland hard money lending may be the way to go. If you want a short-term, easy-to-obtain, and transparent financing method, reach out to one of our expert hard money lenders today! We can help you with your next property loan so you can start or grow your rental business more quickly.
If this sounds like something you’re interested in, contact your local Maryland Hard Money Lender today!
