5 Common Mistakes Beginners Make with the BRRRR Strategy (And How to Avoid Them)
The BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) is a powerful tool for building wealth in real estate. However, like any investment method, it comes with its challenges. Many beginners dive in headfirst, only to encounter pitfalls that cost them time, money, and confidence. In this article, we’ll explore five common mistakes new investors make when implementing the BRRRR method—and how you can avoid them.
1. Overpaying for the Property
The Mistake:
Buying a property at too high a price is one of the most critical missteps beginners make. They get excited about the potential of a deal but fail to run the numbers properly. Overpaying reduces your profit margins and makes it harder to recover your investment during the refinance phase.
How to Avoid It:
Stick to the 70% Rule: Your total investment (purchase price + rehab costs) should not exceed 70% of the property’s after-repair value (ARV). For example, if the ARV of a property is $200,000, your total investment shouldn’t exceed $140,000. Always account for closing costs, holding costs, and unexpected rehab expenses when calculating your budget.
2. Underestimating Rehab Costs
The Mistake:
It’s easy to underestimate the scope and cost of renovations, especially if you’re new to real estate. This can lead to unexpected expenses that derail your budget and timeline.
How to Avoid It:
Conduct a thorough property inspection before purchasing.
Get multiple contractor bids and ensure each one includes a detailed scope of work.
Build a 10-15% contingency fund into your rehab budget for unexpected surprises.
Pro Tip: Focus on renovations that provide high ROI, such as updated kitchens and bathrooms, rather than over-improving the property.
3. Overlooking the Importance of Tenant Screening
The Mistake:
After completing renovations, some investors rush to fill their units without properly screening tenants. This can lead to late payments, property damage, or costly evictions.
How to Avoid It:
Use a thorough screening process, including credit checks, employment verification, and references.
Set clear rental criteria and stick to them.
Work with a property manager if you’re not comfortable handling tenant screening yourself.
A well-vetted tenant can make or break your cash flow, so don’t cut corners here.
4. Failing to Secure Favorable Financing
The Mistake:
Some beginners don’t fully understand the financing options available to them or fail to secure favorable terms for their refinance. This can leave them with high monthly payments or insufficient funds to reinvest in their next deal.
How to Avoid It:
Work with lenders experienced in BRRRR deals, as they understand the importance of refinancing based on ARV rather than the purchase price.
Compare multiple lenders to find the best terms, including interest rates, fees, and loan-to-value (LTV) ratios.
Maintain good credit and minimize other debts to qualify for better financing.
Pro Tip: Build a relationship with your lender. A trusted lender can become a valuable partner as you scale your BRRRR portfolio.
5. Failing to Plan for the “Repeat” Phase
The Mistake:
Many beginners get through the first four steps (Buy, Rehab, Rent, Refinance) but don’t think ahead to the Repeat phase. They’re unprepared to find their next deal or lack the funds to continue investing.
How to Avoid It:
Treat BRRRR as a scalable system. Keep your eyes on the market for the next property, even as you’re working on your current deal.
Build a network of wholesalers, agents, and contractors to streamline future purchases and rehabs.
Reinvest your refinance funds into your next property instead of spending them elsewhere.
By maintaining momentum, you can scale your portfolio quickly and efficiently.
Final Thoughts
The BRRRR method is an excellent strategy for building wealth in real estate, but it’s not without its challenges. By avoiding these common mistakes and sticking to a disciplined approach, you can maximize your returns and grow your portfolio with confidence.
Are you considering your first BRRRR deal? Share your thoughts and questions in the comments below! For more actionable tips and real estate insights, subscribe to my blog. Let’s build wealth together, one property at a time.
