Many Indians who settled abroad face challenges financing their properties, and paying off their mortgages. If they buy a property using a mortgage loan then most of them struggle for 30 or 40 years to pay off the mortgage loan, before which they can say that the property is their own. Here's where the BRRRR strategy offers a solution, by leveraging another real estate to pay off the first mortgage loan and also create some extra returns.
BRRRR Method
BRRRR, or "buy, renovate, rent, refinance, repeat," is a real estate investing strategy that can create returns through strategic buying and renting. It starts with purchasing properties below market value, then renovating them to increase their worth, and finally generating rental income to pay off the initial home loan. Then the new property is refinanced and the process is repeated. Simply put if the property you have bought for your residence is bought using a bank loan, then the mortgage is paid off using rent from another property which we discuss as follows. The first step buy another cheaper smaller undervalued property
Buy
Buy another property. Buy undervalued properties, ensuring that they don't exceed 70 per cent of their value if you do some good repairs and renovations. You can also finance this property also, using a bank loan.
Renovate
Now you have to renovate the property. Use renovation to increase the value of the property and make it more livable and better. Then rent the property.
Rent
Rental income generates monthly cash flow, which is important for real estate investors. You can use this rental money to pay off your initial mortgage of your residence.
Refinance
Now after refurbishing the apartment, its value has increased now you can refinance the same property with another lender. At the refinancing stage of the BRRRR method, it is critical to conduct extensive research to identify lenders that offer you much higher rates than the original loan you took to buy the property. The better the rate more will be your spread. This spread can be used to pay off the debt you used to buy this property, (not the first one, your residence).
Repeat
Repeat the process by buying a new undervalued property, refurbish, rent and refinance. This is the time to reflect on what you’ve learned and make necessary adjustments.
Why This Tactic Doesn't Work In India?
In Western countries, this tactic starts with buying an undervalued old property that has the potential to be renovated. It is harder to find such a property in hugely populated India where builders don't leave any apartments or floors in any building under renovation to convert int into a shop or an apartment.
Inventory overhang in India is very huge. Inventory overhang, also known as 'Months of inventory', is the estimated amount of time it takes to sell all of the current listings. So with a huge inventory overhang, when there are pending supplies to be sold, it is harder to get the price appreciation you expect if you renovate a property. In India refinancing is also comparatively more expensive because of higher home loan rates compared to the US or many countries in the West.
