Monopoly is a board game that many people grew up playing. For some, this game was a source of frustration and disappointment, but for others, it helped them hone skills similar to those that are needed to succeed in real-world real estate. Here’s how you can apply similar strategies to find success in the rental market.
The BRRRR Method
Being familiar with the BRRRR method can help you grow an impressive real estate empire. The steps of this method are: buy, rehab, rent, refinance, and repeat. It seems pretty cut and dry, right? Wrong. There is so much careful planning and execution that has to go into each step to guarantee success. If you want to use the BRRRR method to build your investments, you need to put in the appropriate amount of work.
The first step of this method is, of course, to buy your property. This might seem simple enough, but several factors go into finding the perfect rental property, like the following.
Typically, when looking at investment properties, you would want something nice and move-in-ready, right? Well, with the BRRRR method, it’s better to find a property that needs repair—something you can fix up to increase the value. Consider again the board game Monopoly. Old Kent Road and Whitechapel Road are the cheapest properties on the board, however, if you “fix them up” by adding houses and hotels, you greatly increase the value, creating a high return on investment.
This is what you want to do with your rental property—buy at a low price and wildly increase the value to earn a high profit. Just keep in mind when looking at properties that you don’t want to pick something that requires too many expensive repairs. If you sink too much money into the rehab of a property, then you won’t get as much back in your pocket. Consider consulting with an inspector and have them tour potential properties with you. They’ll be able to offer their opinion and help you make an informed decision when you’re ready to purchase.
Location is often more important to renters than the condition of a property. When looking at potential rental properties, you should take into consideration their proximity to local amenities. Try to find a property that is near things like grocery stores, public transportation, and quality schools. Picking a property in a location central to these will make it more desirable to potential renters. When looking at properties, you should also take into account the statistics of the surrounding neighborhood, including crime rates, average income, and average property values. This information will give you a better idea of the potential of your rental property.
Many people find the idea of this step to be exciting. While demolition can be fun, there’s much more to the rehabilitation of a rental property. Before you do anything to the property, it’s important to have a solid plan. You need to prioritize both safety and functionality in your renovation process. Create a firm budget to stick to during the rehabilitation. When building your budget, plan for any structural problems that need to be addressed. These should be the top priority in your renovation since they are essential to providing a safe environment for renters. Once these issues are taken care of, you can use the rest of the budget for the design of the property.
This is the step of the method that will truly decide your success. It doesn’t matter if you bought Boardwalk and built a hotel. If no one lands on the space, then you’ve only wasted your money. To determine the rental price that you should list your property at, you should look at comparable properties in the area that have recently been rented.
Seeing the prices that they were listed at before being taken off of the market will give you a good range for asking rental prices. Once the applications start coming in, you must find the right tenants. Be sure to do thorough research, pulling credit history and other information to gauge the reliability of different applicants. Taking the time to choose the right tenant will guarantee that you get the appropriate return on your investment.
Refinance and Repeat
This is where the real world kind of beats Monopoly. Once you’ve secured your renters and you’re earning a steady flow of income, you can refinance your loan. What you’ll need to do to make this method work for you is take out a new loan that’s larger than the amount that you owe on your original loan. Then, you’ll use the difference between the two as a down payment on your next property. This allows you to keep repeating the process and keep increasing your net operating income to further expand your real estate empire.