Home renovation is a strategic way to invest in real estate. In our previous post, we introduced to you the BRRRR method and how to execute it. So let’s take a peek at some of the benefits and risks of the BRRRR investment strategy.

What are the benefits of the BRRRR Method?

•  Acquire properties below market value. By purchasing distressed properties, investors can acquire properties for less than they are worth, which increases their possible return on investment (ROI).

•  Increase property value through renovation. Improving the condition and appearance of the property can increase the rental income and the value of the property.

• Generate passive income. This puts one of the path to Financial independence. By renting out the property, investors will have a steady stream of income. This can be used to payoff the mortgage and other property expenses. Once expenses are paid off, there might be leftover funds the investor can keep.

• Extract equity from the property through refinancing. Investors can extract equity that can be used to acquire additional property purchases.

While the BRRRR technique carries many benefits, it also carries risks as well.

What are some risks of the BRRRR Method?

As with any investment strategy, they carry some risks. here are a few to look out for:

• Unexpected Renovation Costs. Renovation can be costly, and unexpected issues can arise during the process that can increase the budget. This includes:

  • Foundation issues

  • plumbing problems

  • electrical system issues

* It’s a smart move for investors to plan for unexpected costs during the renovation process which won’t exceed the budget. 

• Difficulty Finding Tenants. If the property is located in an area with low demand for rental properties, it can be tough to find tenants. In situations like these, the investor might be left with a property which generates no income.

• Market Fluctuations. Real estate markets can be unpredictable. This leaves property values to fluctuate based on interest rates, economic conditions, and more. If the value of a property declines, this leaves a low chance for refinancing to extract equity from the property.

•  Cash Flow Issues. If the rental income isn’t enough to cover expenses associated with owning the property, then there’s a chance for cash flow issues. In turn, an investor may need to use personal funds to pay for these expenses.

• Difficulty Finding Financing. The BRRRR method requires financing for the property acquisition and renovation. Finding and finding suitable financing can be difficult for some investors. It’s tough to qualify for traditional bank loans and hard money loans can come with high interest rates.

• Poor Investment Choices. If one invests in the wrong property, it can lead to a  lack of ROI. Investors should conduct thorough due diligence on the property and local market before they purchase it to avoid this risk.

It’s important that whatever you choose to invest in, you are aware of potential benefits and risks. Evergreen Investments is readily available to help you at any point in your journey and provide you with custom support to fit your needs.