Building wealth through real estate isn’t always easy, but a path has already been paved. Created by Robert Kiyosaki, the BRRRR method debuted in his book “Rich Dad Poor Dad” and has since become a blueprint for current and future real estate investors.
An acronym for buy, rehab, rent, refinance and repeat, this approach guides investors to purchase low-priced properties in need of inexpensive upgrades and rent them out. It’s not a get-rich strategy, but it can help you earn passive income, build equity and potentially create a sizable real estate portfolio of rental homes. Of course, it’s also a huge commitment requiring significant upfront capital and a large amount of your time.
Keep reading to learn more about the BRRRR method to determine if it might be a good fit for you.
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Buy
To get this process started, you’ll need to buy a property. This shouldn’t be something completely turnkey, as you’re looking to get a discount.
Set your sights on properties like a foreclosure, moderate fixer-upper or even a home that’s almost perfect, but just needs a few upgrades. As long as the potential is there and the improvements needed fit your budget, you’re likely in a great position to buy.
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Rehab
After you’ve purchased the property, it’s time to get to work. Exactly what that will entail will vary by property — i.e., updating the kitchen and bathrooms, removing old carpet, installing new windows, purchasing new appliances, upgrading the landscaping.
Before starting renovations, make sure the money you’re putting into this house will be a good return on investment. For example, adding a pool to a home in a non-tropical climate might not increase your property value, but finishing a basement could.
Rent
After your rental property is upgraded, it’s time to list it. This means you’ll need to decide how much you want to charge per month in rent, which should be based on several factors.
To get to this number, analyze the monthly rates of similar rentals in the area, factor in any recent market changes and consider maintenance and repair costs. You should also consider how tenants will pay their rent — i.e., through a property manager, by check, electronically.
There’s also many factors to consider when choosing tenants. For example, you might require applicants to meet a certain income threshold, submit a credit report and provide references.
Refinance
Finally, you’ll want to refinance the property. Since you worked hard to increase the value of the home, you should be able to use that as collateral on your new loan.
This means you will likely be able to recoup your initial investment and possibly even additional equity. This should feel satisfying, after all the hard work you put into the process.
Repeat
After buying the house, renovating it, renting it out and refinancing it, your work is done. With the cash back in your pocket, you’ll have the financial freedom to start the process all over again — if you so desire.
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This article originally appeared on GOBankingRates.com: How To Use Robert Kiyosaki’s BRRRR Method To Build Wealth
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