Discover the power of BRRRR Method Math
What is the most exciting math formula since Einsteins E=MC2?
Creating Wealth = The 70% Rule
70% Rule Formula – MPP = (70% x ARV)- Repairs
ARV, or “After Repair Value,” is the estimated value of a property after renovations are completed. Many experienced investors focus on properties with “value-add” potential, aiming to keep their total costs—including the purchase price, renovation expenses, and closing fees—below 70% of the property’s ARV. This strategy typically creates 30% equity in the property. For example, if the total costs for purchase and renovations amount to $210,000, and the property’s ARV is $300,000, the investor gains $90,000 in equity. This approach is widely used throughout the United States and many other parts of the world. Using this formula, if your construction budget is $50,000, what is the Maximum Purchase Price (MPP) you can offer the seller in this example? **Answer is at the bottom of the page*
Next-BRRRR Method-Formula Componets
- Buy: Nationwide, many sellers find themselves in distressing situations such as divorce, bankruptcy, natural disasters, or inheriting property from relatives. Additionally, properties that have been poorly maintained are often sold to investors as a practical solution. We will teach you how to find an acquisition agent for your team. Team building will be covered later on this site.
- Rehab: This is the most important component to master. A General Contractor, or "GC," will create a construction budget based on your project. However, this budget is not a guarantee that costs will stay within the estimated amount. It’s common for unexpected repairs to arise during construction. Hidden defects might be uncovered, and government inspections could require additional work. We will guide you on how to select a reliable GC and how to protect yourself from potential cost overruns.
- Rent: Once the property is ready, rent it out to tenants. The rental income should ideally cover the mortgage and other expenses, generating positive cash flow. One of the most important decisions is selecting a professional property management company. We will guide you on how to choose the right one for your team. We strongly recommend that new investors avoid managing this task on their own.
- Refinance: After the property has been rented and its value has increased due to the renovations, refinance the mortgage to pull out cash based on the new, higher value. If you successfully followed the 70% formula, you will be rewarded in a significant way. You should recover your initial investment when the loan closes. This is where the BRRRR MAGIC happens! You now have the funds to purchase your next project. A key partner in this process is a professional lender you can trust. We will guide you on how to borrow money efficiently.
- Repeat: Use the cash pulled from the refinance to purchase another property and repeat the process, allowing for portfolio growth over time. You are probally woundering how many times can I do this process? The answer is unlimited times. One pool of funds to start your new project can very easliey be used twice a year. As you build your portfolio you may find your self saving a second money pool to double your progress.
The BRRRR method is favored because it helps investors build wealth and equity without needing a significant amount of initial capital for each property. It’s essential to conduct thorough market research and financial analysis to ensure each step is profitable.
**Answer to question at top of page $160,000**
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