BRRRR stands for Buy, Renovate, Rent, Refinance, Repeat. It is an investment strategy where you purchase a property, force its value up through renovations, rent it out, refinance at the higher value to pull your capital out, and then use those funds to buy your next property.
The refinance trap occurs when the lender you are working with has a seasoning period and is unwilling to refinance the property immediately after your renovations are complete. This can leave your new equity inaccessible and stall your ability to move capital into your next deal.
The fixed-rate trap happens when you lock into a fixed-rate mortgage upfront and later face hefty penalties because your current lender will not refinance the property on the terms you need. This limits your flexibility to switch lenders when it is time to pull your money out.
A variable-rate mortgage is recommended because there is no guarantee your current lender will refinance the property after renovations. If you need to switch lenders, a variable rate typically carries only a three-month interest penalty, giving you far more flexibility than a fixed-rate mortgage.
An advanceable mortgage is a product offered by some lenders that allows them to set up a parallel mortgage or line of credit alongside your original loan once renovations are complete. This lets you access your equity without breaking the first mortgage, saving you penalties and keeping your strategy on track.
