BRRRR! 

No, that is not a reaction to the weather here in Canada. It actually refers to a real estate strategy, best known for taking novices and turning them into savvy and successful investors. Here’s what each letter stands for:

  • B-Buy
  • R-Rehab
  • R-Rent
  • R-Refinance
  • R-Repeat

This acronym makes the steps easy to remember, but does it mean anyone can become a wealthy investor? It’s a little more complicated than that. 

However, it’s a great way to slowly immerse yourself into the exciting and fascinating world of real estate. In this post, we’ll go through each of the concepts in-depth so you can decide if this is an adventure you want to take.

Why Invest in Real Estate Anyway?

Everyone wants a financial future that is abundant and secure. Investing is one of the best paths that can take you there. You may already have RRSPs or TFSAs set up where you contribute a little each month. If all goes according to plan, those funds will grow and allow for a comfortable retirement one day. 

If you want to take it a step further, you might look into stocks that have high growth potential. However, higher potential often means extra risk. 

Stocks can lose value if a business loses market share. If the company goes under, your money evaporates into nothing, like disappearing ink on paper. It’s not that you shouldn’t invest in stocks. But what can you do to safeguard yourself against unpredictable losses?

“Diversify, diversify,” the voices of financial experts everywhere cry out in unison. Enter real estate investing, where you can be certain that the land you have a stake in will never disappear. Yes, prices can fluctuate, and it always hurts to lose money on paper if values shrink in the short term. 

But it’s one of the few investments you can make where you can be safely assured that you will never lose it all. In the long term, property values have always risen in value. Those who are willing and able to stay the course consistently grow their equity and become more financially secure as time goes on.

Want to know more about real estate investing in Toronto? Here are some other posts you may enjoy:

Who Is the BRRRR Method For?

Given enough time, the BRRRR method could be for anyone who gets a foot on the property ladder. Buying one home is a step in the right direction, even if it is your primary residence rather than a rental unit. Once you build equity, you can look at adding to your portfolio. 

In the meantime, you might decide to rent a room in your house to help cover your monthly mortgage and carrying costs. Where you decide to go from there depends on your personal goals and your risk tolerance. What’s important is that you’ve already taken the first step in the process.

Buy

Breaking into the market for the first time is usually the most difficult step for real estate investors. Properties aren’t cheap, especially in Toronto. The first hurdle to buying your first home is coming up with a down payment. 

If the house is $1 million or more, that means you’ll need at least $200,000 right out of the gate. On properties less than $1 million, the barrier to entry is a little less cumbersome. You’ll need 5% on the first $500,000 and 10% on the remainder. 

However, there is one important caveat. If the home is to be an income property and not your primary residence, you’ll need 20% regardless of the price. If you’re a first-time buyer, there is a simple way around this rule; buy an investment property that you will also live in. 

For example, your first home might be a duplex where you reside in one unit and rent out the other. Owning real estate can change your life in so many ways that it’s worth being creative and finding a way to break into the market in any way you can.

The real magic happens once you own a home and start building equity. With a growing population and not enough houses for sale or to rent, property values are rising fast. Every time they do, your purchasing power increases. The trick is to find a home or condo that may need a little work, but not so much that the cost of renovations negates what you save on the price. ARV is a critical metric to keep in mind. It stands for After Repair Value, which is a reflection of the home’s potential rather than its current condition.

If you’re on the hunt for just the right home, our featured listings are a great place to start.

Rehab

One of the keys to successful real estate investing is to find properties that you can purchase for under-market prices. These can be rare, but they do happen, even in a high-demand city like Toronto. Your mission is to be ready to act when an opportunity arises.

Then you roll up your sleeves, (or better yet, hire someone) to renovate and upgrade the home to make it more desirable for potential tenants.

Unlike a house you own, you don’t have to invest in top-of-the-line home improvements. In fact, this is often undesirable since tenants will rarely give it the love and care you would for your own home. As a result, you can safely skip installing any luxury finishes and high-end appliances. 

Instead, you want to bring the property up to standard in terms of safety and overall comfort. This may involve HVAC or electrical work, adding insulation and fixing any plumbing issues. The result should be a home that is visually appealing and structurally sound, where you can justify charging enough in rent to cover your monthly expenses. However, there’s no need to go over the top with home improvements on a rental property.

Rent

Once your investment property is up to standard, you can begin the hunt for the right tenant. There is great news for you on this front–the demand for rentals in Toronto is scorching hot, and vacancy is low. Your most challenging task is to choose the best fit from what will likely be a vast pool of interested parties.

Since the right tenant can make or break your investment at this point, you will want to choose carefully. There is no need to panic, however. There are several resources and tools available to help you find someone who will pay their rent on time and care for your property. 

  • Get permission to conduct a background credit check, which will let you see if your prospective tenant has a history of paying their bills on time.
  • Contact the tenant’s previous landlords to verify that they were reliable and treated the home with respect.

You may have to rely on your gut feeling a little to ensure that a prospective tenant will be the right fit. Just make sure those instincts are backed by data. 

Even better, consider hiring a property management company to handle tenant selection for you. It may mean less net income from your investment, but it also means fewer headaches and demands on your personal time.

Owning a home in a family-friendly location (like near a school) will attract the highest quality tenants. Here are some resources that may help:

Refinance 

Here’s where your venture starts to get exciting. The equity you’ve built with existing property will empower you to purchase the next. The way that works is you borrow against that equity and the rental income you earn each month to fund the down payment for a new property.

A lender will typically allow you to borrow 75 to 80% of the value of the existing home after you have owned it for a specific period of time. Alternatively, private and B lenders may approve your loan even when the banks will not.

Financing an investment property can be complex, and it’s a good idea to sit down with an experienced real estate team to analyze your resources to determine if you are ready to move to the next stage in the BRRRR method.

Repeat

This step is simple. You’re going to repeat the process all the way from the beginning. You’ll begin searching for a new income property with a high ARV. After renovating and making the required repairs, you’ll generate income by renting it out. Once you build up even more equity, you can refinance it and start again from the beginning. Where you will stop is up to you.

Some people are satisfied with one or two properties to their name. Others will go on to become seasoned, full-time real estate investors. 

Toronto is full of highly desirable neighbourhoods where tenants are searching right now. The Annex is one of them. Why not find out Everything You Need To Know About Buying A Home In The Annex

Managing and Minimizing the Risk

Does the BRRRR method sound risky? Without careful calculations and a well-planned strategy, it can be. Done wrong, real estate investing of any kind can be a source of anxiety and stress. Done right, however, it can be a path to a level of financial security you never realized was attainable. The following guidelines will help you minimize the risk and give your venture the best chance of success:

  • Remember that real estate prices can fluctuate, which can mean short-term losses. Invest for the long-term, and these temporary setbacks become a minor blip.
  • Interest rates can change, which can increase your monthly carrying costs. Whenever possible, avoid buying at the top of your budget so you have a financial cushion. Your local real estate expert can help!
  • Your property may sit vacant while you search for the right tenant, which means you must shoulder the costs without rental income. Once again, a rainy day fund will carry you through the tough times.
  • Avoid emotional decisions. It’s easy to overpay when you find a home you love. Working with a real estate team with investment experience will help you stay objective while basing your decisions on data. 
  • There is no rush. Patience will protect you from many pitfalls, especially in the beginning. Hold out for the right opportunity, but be prepared to act when the time arrives.

The good news is that once you’ve completed all the steps the first time, everything gets easier. Each time you go through the method, you gain skills and insights. By the time you’ve been through the process a second or even third time, you’ve become a seasoned and savvy investor. Even better, you’ll soon find yourself surrounded by a network of professionals to support you every step of the way.

Are you ready to learn more about investing in Toronto real estate? Our experts are here to help with anything you need. Reach out today to david@batorigroup.com, bobby@batorigroup.com or call (416) 485-7575 with any questions or to get started.