The BRRR strategy involves buying a property below market value, renovating it to increase value, refinancing to pull out invested capital, and renting it for long-term cash flow and appreciation. By holding the asset for 10 to 20 years instead of selling early, investors capture the full equity curve and benefit from compounded growth over time.
Construction costs have risen approximately 25 to 30 percent because materials and labor have been harder to secure during the pandemic. Investors who did not build this increase into their renovation budget risk being unable to refinance all of their costs out of the deal, leaving additional capital tied up in the project.
A variable-rate mortgage is usually the better choice because it offers the flexibility to switch lenders without incurring large prepayment penalties. Fixed-rate mortgages may carry huge penalties on exit, which can seriously erode profits when you refinance after completing your renovations.
Run-down properties that require significant work usually do not qualify for standard bank financing and must be funded through a B-lender or a private lender at a higher cost. It is important to convey the property condition to your mortgage advisor early so you can budget for higher holding costs and include appropriate financing conditions in your offer.
Many lenders require a seasoning period of at least six months to one year before they will recognize the new appraised value for a refinance. Very few lenders allow an immediate refinance at the higher value, so you must validate this timing with your mortgage advisor before purchasing the property.
