BRRRR for Beginners: How to Build Massive Wealth with This “Dead” Strategy
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This is still the fastest way to scale your rental property portfolio in 2025. You buy a house, you renovate it, and then pull some or all of your equity out, and then buy another. Even with today's interest rates, it can still work if you get creative. Hey everyone, it's Dave Meyer, head of real estate investing here at BiggerPockets. Today on the podcast, we are revisiting an old friend, the BRRRR strategy.

If you're not familiar with this strategy, here's how it works. First, you buy a property. That's the first B. Then you rehab that property, which will add value. Then you rent out that property. And next, you refinance the property. And this is the key step, because if everything goes according to plan, you increase the property's value enough that you can pull back out most or all of your cash from your down payment and renovation budget.

And then the last R in the BRRRR acronym is repeat that process with a new property. And if this all goes how it should, BRRRRs can be incredibly powerful because at the end, you own a newly renovated cash flowing property, but you still also have most of your starting capital to go put into another deal.

And when Brandon Turner and BiggerPockets coined this term back in the 2010s, it was relatively easy to pull off. But today, especially with higher interest rates and higher rebate costs, it's much rarer to have everything go perfectly. More often, you're going to have to leave some of your cash in that deal, or you'll have to accept only break-even cash flow on the back end.

But that does not mean that BRRRR is dead. It just means that you need to modify it. You need to get more creative. You need to do the work as an investor to leverage the BRRRR along with other strategies like ADUs and zoning upside to meet your own financial goals.

So today I am bringing on Lekha Devatha onto the show. Lekha is an investor and a broker operating in Seattle, and she's doing everything I just said. She's using all the tools available to her to modify and modernize the BRRRR strategy so it can still enhance her portfolio right now. I'm really looking forward to hearing how she's doing it. So let's bring her on.

Lekha, welcome back to the BiggerPockets podcast. Thanks for being here. Oh my gosh, thank you for having me. It's been a minute. How many times have you been on the show? The main podcast just once. I recorded one of Brandon Turner's birthday episodes. Oh.

And that was in 2020. Okay, nice. Well, welcome back. We're excited to have you. For people who didn't listen to that first one, can you just give us a little bio? Yes, absolutely. I'm Lekha Devta and I mainly invest in the greater Seattle area. I have now been doing this for a good decade. And after flipping almost 100 units,

I can tell you that I have learned a lot more than just flipping properties. It's just taught me so much about stabilization, buying, creative exits.

And just a whole other piece of education that comes with knowing how to flip a property well. It's been fun. Why did you get directly into flipping 10 years ago out of all the different strategies? It was the quickest way to make money. Okay, that's fair. I was giving up my W-2 and jumping into something I didn't know what to do, how to do. I didn't have the money to do long-term rentals. Okay. And so, you know, I was like, okay, let's go learn to flip a house. Yeah.

Okay. Well, I love it. But today we're actually not here talking about flipping. We're here to talk about the BRRRR method. So at what point did you start doing BRRRR as well? I would say about three years after starting to invest in real estate. I met my friend Thatch when, and he was like,

If you keep flipping homes, all you're going to be doing is a job. If you want to create true long-term wealth, then you need to start holding properties. And it just so happened that it was just a fantastic time to do BRRRRs because the properties I bought back then, obviously, they have under 3% interest rate. Maybe you could give us a definition of BRRRR just for anyone who is not super familiar with it. But to me, it's kind of...

the perfect hybrid between flipping a house and a rental. You kind of get some of the benefits of each, right? Exactly. So a BRRRR property is basically when you buy a property, you renovate it, you rent it out, you refinance. It could be a cash out refinance or not, or you leave some money in the deal, but then you repeat the process.

And by doing this over and over again, what you're doing is you're buying something that is obviously under market value. And by putting in your sweat equity, by actually doing the rehab and doing the work, you are able to increase like force appreciation and value on that property. And not only that, once you rent it out, you actually can make great cash flow. I know with interest rates being where they are today, it's a little bit more challenging because

But trust me, those opportunities still exist. Good. Yeah. Well, that's what I want to talk about because there is this sort of narrative in our industry right now that the BRRRR is dead or it's not possible. I think my own experience would speak to that's not true. I'm curious about yours because you're in a very different market. You're in Seattle. It's expensive. Like what are the types of deals you're doing right now? Okay.

Let's talk about a couple of deals that I did just in the last few months, which I completely was able to utilize the birth strategy. So first, I bought a single family home. It was literally something that was on market. Anyone could have bought it. But what was cool about this single family home was that it was on a double street.

which means the house was on one street, but the backyard was on a second street. There's few special streets that actually have it. Now, what this means is I can build a DADU in the back and the DADU would have its own street frontage. And a DADU just for everyone is a detached accessory dwelling unit. So when you talk about ADUs and zoning upside, this comes up a lot. An ADU can mean a lot of different things.

But it can mean a second unit in your basement, in your attic that you stick onto the side of a house. A DADU or a DADU is one that is freestanding. It's not touching the primary dwelling. And so it sounds like, Laika, what you're saying is there's opportunities to build a DADU where it doesn't feel like tucked in someone else's backyard. You're sort of giving them a space.

a more single family home experience. Yeah, yeah, than a traditional dadu. Absolutely. Is that the primary type of deal you're doing in Seattle? No, I'm actually also doing land banks.

So buying property now, stabilizing it. So still buying them very distressed because I love distressed property. That's how I know you're friends with Jamstater because you buy just the scariest buildings. I love those. Yeah. So when I buy a distressed single family home, I'm able to fix it up, raise the value. So the appraisal comes in much higher and

And then what I do is I put a DSCR loan on it. And then once I put that loan, I am good to hold it for the next few years and just land bank on that lot so that I can in few years build more units on that lot. I love this idea. This sort of goes...

in line with a framework that I've been talking about a lot on the show in the last couple months, where we're talking about upside. And the general framework here is that if you can buy a deal that you can at least make break even in the first year, and then there's different like upsides to it in two years, three years, five years, like those to me are good deals in 2025. Like,

It sounds like you're doing just that. You're buying something, stabilizing it. I assume if you're getting a DSCR loan, most lenders, the reason it's called the debt service coverage ratio loan is that they're looking for some ratio between the income of the property and the amount of the debt service, hence the name. Right. And so-

Most of them, obviously, they want at least one, which means that the rental income will cover the debt service. A lot of them look for 1.2, which means that you need 120% of your debt service in terms of revenue. But the reason I'm saying this is because it means they need cash flow positive property.

And so I'm curious, like what kind of cash flow in a city like Seattle, like are you able to generate even with buying distressed? Actually, it's really interesting and we can blow people's minds with this, but you don't even need to have your own money to do this. And then you can just build like tons of equity in properties. So what I did was I bought a single family home for $300,000.

And it's on a corner lot where one side is the home and then on the other side is a detached garage. Now, this city hasn't gone through its zoning change yet. But in six months, they're going to actually allow for daddos on this lot. And if they don't allow for daddos, they already allow cottages to be built on the lot. So we can always do those. But what's cool about this is I put about 50 grand into fixing it up. So...

Total acquisition and rehab was 350K. And then when it appraised, it appraised for 480,000. Once I had gone in there, done my magic with the rehab and also got it rented out. So it rented for about 2400.

So based on the income approach, it appraised for 480. Nice. Which means I was going to get about 300K on a DSCR loan. Now, because I was into it for about 350, what I did was I got a partner, a private lender,

that lent me the remainder of my down payment. Okay. And the way that it's structured is that she doesn't get anything now, but in about three years, when we're ready to offload this property, she gets 15% of the equity. Oh, wow. So I don't have any of my money in, but at the same time, every month we make about $500 in cashflow.

Wow. Okay. So because you've gotten a private money lender to defer payment for three years. Yes. Okay.

Okay. I'm curious why that lender would do that. Okay. So this lender, and this is also so interesting, this lender is in tech. She just wants to make passive income. She doesn't care about mailbox money. She just wants to park her money somewhere where in three years she could make back a bunch of equity. Now, what is that equity we're talking about, right? Okay.

So this property today is valued at $480,000 and that city appreciates almost double every five to six years. So in three years, even if that property is only going to sell for like $600,000 or $650,000, that's still a lot of equity that she can get back for not doing anything. And her money is not stuck in stocks. Her money is not sitting on the sidelines. It's actually being put to use. Interesting.

Okay. I'm going to be honest. I don't know if I'd do that deal as a private lender, but I'm glad you found someone who would. It's actually surprising how many people you would find to do something like that. Well, that's a very interesting deal. It's not like a complicated structure, but do you think like newbies could take on this type of deal? Yeah. So my biggest thing is, and I was given this piece of advice a long time ago, and I am

Very big on it. Never over leverage. I had the money to bring to the table myself. Like I had the down payment. If I didn't find a private lender or didn't have someone lined up, I would have funded this deal myself.

So I always feel like someone starting new, it's okay to leverage something 100% as long as you have the funds to back it. A lot of people, like what I see happen is they raise money here, they raise money there. They have no way of making active income if something were to go wrong. And so I just feel like it's important to throw that out there is

make sure that you are secure and that you are not over leveraging beyond what you can pay back. All right. I'm glad you said that, Laika. And I want to ask you a question about why you leverage, even though you can pay for it. But first we have to take a quick break. We'll be right back.

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We're back on the BiggerPockets podcast here with Lekha Devata talking about the BRRRR method and a couple creative strategies that she has employed in today's day and age. And before the break, Lekha, you said that you had taken on a lot of debt. You didn't put a lot of money into this deal, but you have the money to do it. So I get this question a lot. Why? Why would you do that if you could just pay for it yourself? Great question.

Because I want to scale. Instead of doing one property and using all of my money, I want to hedge my bets and put it across multiple different properties.

Not just that, I think holding real estate is more expensive than anything else. It could be a tenant not paying. It could be a squatter issue. It could be a roof leak. It could be a sewer line. It could be so many different things. Just little things like the carpet needs to be replaced or the wooden flooring has to go or something like that. So owning real estate for me is super expensive in a way. So I'm like, I always have to just keep aside funds for...

for incidentals. So it doesn't mean that I would want to put all that money into one deal. I can always hold it and say, okay, if I don't have a private lender, if the deal goes south, then I have rainy day money. That makes a lot of sense to me because I sort of struggled with this too. Because as I started doing a little bit of private money lending, a lot of the people who I'd consider lending to, like they could definitely just buy these houses themselves.

And I was always kind of like, why would you do that? And like you said, it's a lot about hedging. And also, leverage really boosts your return as an investor. If you think about the percentage return that you get by using someone else's money, it really accelerates it. So if you only have to put in $100,000 to build $100,000 in equity, that's an 100% ROI. If you're putting $500,000 to get that same $100,000 in equity, yeah, maybe you're making less money.

because you're paying someone that interest, but you're only getting a 20% ROI. And so you sort of have to think about the math there. And that's why, you know, banks exist and why private money lenders are willing to do these things because it can create problems

win-win scenarios for the lender who's probably just looking for a stable return like Laco was talking about and growth capital for investors like Laco who want to scale. And also, I think it just makes you more lendable because like you said, if you came to me and said, hey, I want to invest in a deal of yours,

you know that I already have the money and I don't need it. I'm not desperate. Totally. You'd rather lend to someone like that than lending to someone that doesn't have that experience or doesn't have that credibility and the bank account because then if something were to go wrong with the deal, then your money is gone. Yeah. You want like actual collateral. Yeah.

Right. Going back to this sort of narrative that we continuously hear that Burr is dead. Like, is this the kind of deal structure you would have done five years ago? Or have you had to get a bit more creative as market conditions have changed? So five years ago, if I were to put this same deal in context, my interest rate would have been about 3%.

And at 3%, I would cash flow about $1,200. And not just that, I could get a lot more leverage from just a DSCR lender. So instead of them only giving me $300K, they would have probably lent up to $380K. So I would have actually done a cash out refinance. So that's the biggest deal. I think the biggest difference, I think with the BRRRR strategy today,

You might not be able to do a cash out refinance, whereas five years ago, four years ago, you could actually still do those. I just did a deal where it was not a cash out refinance, but I didn't put anything in the deal. Right. Like I didn't have to bring any of my own money in. Yeah. So you wouldn't expect to get money out if you're not putting any money in. Right. But I'm curious, when you're saying you can't do a cash out refi, does that mean...

You can't do it at all or you can't do the quote unquote perfect burr where you're getting 100% of your equity out. Oh, you can still do it all. It's just that for me right now, I'm yet to see a deal that I can do a massive cash out refinance on. But I can explain my dad who deal and how I put no money in the deal of my own, but I ended up with a beautiful house that the bank has financed 100% that I don't have

Yeah, exactly. Yeah.

And that was awesome. It was great. It was easy, but they just don't exist anymore. But that doesn't mean that BRRRR is like an ineffective way to build wealth. It still is, at least in my opinion. It's just you need to take a different approach and you might not be able to hit these grand slams on every single BRRRR deal that you do. You might need to just take a little bit less out. You might take 50% out of your equity or even 25%.

But the fundamentals of it haven't changed. It's still a way to accelerate your equity growth while you're able to hold on to properties long-term. And at least to me, that hasn't changed. And I think it's unlikely to change. No, it hasn't changed at all. And I feel like the more creative you can get with buying properties...

the more you can even use the traditional BRRRR method. Like you can find seller finance deals instead of doing a single family. If you did a fourplex, stabilized each unit and rented it, you can still do a cash out refinance and you can have positive cash flow. And so these deals still exist. It's just a matter of buying rights, but also coming up with a solid exit plan.

I want to hear about what your exit plans are because you teased that early about creative exits, and I want to know what that means. But I just want to give an example of a BRRRR that I'm sort of in the middle of doing that maybe some people would say is boring or is not a home run, but for me, it just totally makes sense.

I bought a deal. It was occupied. And then over the course of a year, as tenants moved out, I renovated each of the units and I invested additional money into renovating them that I paid for that cash. How many units were there? Just two. Two units. Easy to do. Mostly cosmetic. There was a couple of systems that needed updated. It's an old building. But I put a little bit of more money in. When I go to refinance it, I'm going to be able to take all of my rehab money and

And then probably another 10% of my down payment now.

And so for me, I just added value to the property and I'm putting less money down than I originally did on a deal that was cash flowing on day one and is now going to cash flow significantly better. Did I do it for free? No, I have to leave some money into it. But as a buy and hold investor, I'm OK with that, especially in today's day and age. Like, I don't want to be max leveraged, so I'm OK keeping some money in there. And if you evaluate that by pretty much any financial metric other than like

is it as good as what you did in 2018? Like it's still a good deal and it's still a good investment. But also, can you imagine what's going to happen to it if interest rates did go down? Right. Totally. Yeah. You would walk away with so much equity and you can refinance. I mean, there's so many different possibilities. Yeah. And the value of it will probably go up in that case. But like, even if it doesn't, like it's still a good deal. And I think it puts you in a position to get both because cashflow is hard to find. And so to me, at least,

You need to find these ways to add equity and then hold on. I think the cash flow will get good over the next five to 10 years as rents grow up, but to make it worthwhile for your effort and money in the short term, you got to find that way to add some equity. Yep, exactly. So I'm also a real estate broker and I like doing investment type sales. And so I had this young couple come to me and they were like, look, we really just want to do a house hack.

And so I ended up finding them on market a duplex, just like you said. But this duplex was cool about it was it was turnkey. So they ended up living upstairs and they're renting out the downstairs. But the duplex on the side has a massive side yard and a huge backyard.

So going into that, we knew we could build in the back. And so now that the city has changed its zoning, we just found out last week that they can build about four units in the back. Whoa, cool. So that means they can literally sit in their living room and build in the backyard and walk away with millions of dollars of equity. And because it's their primary residence, that's all going to be tax-free, right? All tax-free. Beautiful. Love that.

See, that to me is like this upside framework, right? It's like you're taking your primary residence, you're using an owner-occupied strategy, then you're doing zoning upside, then you're doing value-add upside. You're looking at a deal that if you just looked at it on Zillow, it wouldn't make sense. But if you do just that extra level of research about what's possible and how to bring this property to its highest and best use...

That sounds like a home run. That's a grand slam deal, right? Yeah. You know, that's a fantastic deal. So I think that goes to just showing about, yeah, it's a little bit harder than it was, but the returns are still absolutely possible. Yeah. Killer. All right. I want to talk about steps that our audience can take like to pursue their next BRRRR. But first we have to take a quick break.

Before we go to break, though, I do want to remind everyone that BP Con tickets are out for sale. We have early bird tickets available. It gives you $800 off our tickets. This year, it's in Vegas. Lake, I know you're going to be there, right? I'll be there.

Are you speaking this year? I am. What are you talking about? Well, as luck would have it, I am doing a whole workshop on optimizing your portfolio. Oh, very cool. So if you want to hear Lekha's talk, I'll be talking. All of our other friends here on the BiggerPockets podcast will be there. Go buy a ticket now because it is the cheapest they will be. Go to biggerpockets.com slash conference and get your early bird ticket today. We'll be right back.

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Welcome back to the BiggerPockets podcast. I'm here with Laika. We are talking about BRRRR. She's given us some examples of the really creative strategies that she's been using in Seattle. Laika, I'm curious, though, are there any tips as an agent and an experienced flipper, experienced BRRRR investor that you would give to people who want to get into BRRRR but are finding it difficult in today's market?

Yeah, I mean, there's so many different strategies. A lot of them just, you know, starts with finding the property and you can just find them online. You don't even have to go look for off market deals. But I think like rent by room is a really good strategy. Seattle doesn't have this, but a lot of other markets have rent by room specialists that they're like Airbnb operators. You just give them your house and they can run all of it. All of the marketing, screening tenants, all of the marketing.

I mean, it's incredible what they can do. So I tried this in the Raleigh market and it was just, I was like, oh my gosh, this is amazing. And so you could just buy a house with lots of bedrooms. You don't even have to fix it up. You can put new paint, carpet, maybe. That's a great way to increase income. Is that different from Burr though? Or were you saying you would like buy a Burr?

fix it up and do that? Or you're saying you just buy a stabilized house and do that? You can do both. I'm going to say this again. I will never buy a turnkey house or even like a minor cosmetic house. I am all about the down to the studs. So I buy them crazy.

But I'm saying if you don't want to do that, you can still make a lot of cash flow by just buying something that is more turnkey, that was once maybe used as a single family that you could convert to a rent-buy room. All right, great. Well, that seems like combining two really good strategies, right? Like you're taking BRRRR and rent-buy room. Tell us a little bit about some of the other BRRRR strategies that you've looked at. Like, is it mostly based on zoning upside or are you still able to do...

sort of a traditional like buy a duplex, rehab a duplex or buy a single family, rehab a single family? Or are you mostly focused on adding capacity, adding units in some way? I love buying triplexes and fourplexes. I think those cash flow so well, especially buying them distressed and then fixing up every unit because there's so many different exit strategies on that. You can rent out three long-term and one Airbnb.

Short term. You can condoize and sell each unit separately. You can fix up the property, raise value and raise rents. Or you can just sell it as a whole turnkey investment for a 1031 buyer.

So I just feel like those have so much potential for different exits that those are my favorite kind. And plus, you get a conventional loan on it. Awesome. Yeah, that's a great strategy. So what are you looking at now? Like, are those the kind of deals you're looking at next? Or what are your next few moves that you're planning to make? So I'm the kind of investor that I have my eyes open for any kind of deal.

It could be a single family fix and flip. It could be a long-term buy and hold. It could be a multifamily deal. If it makes sense and if there's a lot of meat on the bone, then that's the deal that I'm looking for. So I just want a lot of equity that either I'm able to create or it comes existing. Like I just today closed on a split entry home, which is three minutes from where I live and

The house that I'm buying, I'm buying off market. It is a little bit distressed for 1.1 million. The appraisal came in last week at 1.7 million. Oh my God. I know. Crazy. What? So I'm just like walking into equity. Yeah. Just keep doing that. Yeah. This deal was off market. The seller came to me directly and said that she found me because she's attended some of my meetups and has come to my walkthroughs.

So I just feel like social media too has such a big part to play in your investment journey. Like if you constantly put yourself out there by providing value, it does come back in spades. Like I do my events just to build community and I do my walkthroughs for free. Like they can come to any of my flips. I show them the process, my learnings on the project, and it's just helpful for people to know that,

who I am, what I do, and also learn in the process. And that helps to get amazing deals. Do you think like regular investors can do that? Because, you know, you've been doing this for a while. You host a meetup. Like, how do you recommend someone who's maybe just starting and isn't as confident in their ability to network start making these types of relationships? Oh, my gosh. I'm so glad you asked because a lot of people don't make the effort.

When you don't have projects, when you're just starting out, it is the best time to build community. Go to your local like Facebook real estate groups. And if there are none, you can start your first Facebook group for that city.

And if you did that and you just constantly added value, invited people to come be a part of that network, you're not even leaving your house, but you are here creating this incredible online community. And my friend Jan in Seattle started a Facebook group that now has 20,000 investors.

And Dave, if you're not part of it, I highly recommend you join it. Oh, I think I have to. You have to because you see off-market deals. Like if I want a contractor, a plumber, like little things to big things, I find it in that group. And so you could be starting your own Facebook group, your own Instagram broadcast channel, or just, you know, start a networking meetup. So good. Invite local investors to come speak at it.

Because that builds credibility with experienced investors, but also new investors just like you. Awesome. Yeah, that is such great advice. And one of the reasons I'm excited to be back in the United States is now I can go network with you and your group, and I could just piggyback off all the work that you've already done to build this community. And what's funny is if I didn't have that meetup group, I wouldn't have started it now.

Because I feel like I don't need to. Right. But back when I did start it, I was newer and I needed that community. Yeah. And I'm only half joking about piggybacking off you. Like, I don't need to start one because you've already done it. And I think that's a lesson just for everyone listening that...

These groups exist. And so even if you're not the type of person who wants to organize something or has a network to get this thing off the ground, if you live in a big city, there's probably already several that you can go tap into. But even if you live in a suburb, I hear people who in towns that I would never expect

had a real estate investor meet up, you know, towns of 10 or 20,000 people. Yeah. There's still groups of people who want to get together and talk about this stuff. And I think it's a great way, as like I said, to one, find deals, but also just build confidence and like build a community where you feel like you have a support group to help you through the challenges that inevitably arise as an investor.

And they will arise. Yeah, exactly. They always do. That's part of it. But it's more fun to complain about it to your friends rather than just suffering through it alone. Exactly. All right. Well, any last thoughts on the state of Burr or investing in 2025, Lekha, before we get out of here? You know, I strongly do believe that there's lots of deals out there by

putting yourself out there, you can find them. Just keep at it. Continue to educate yourself. The BiggerPockets conference is an amazing way to find investors, even in your local communities. So come to conferences like that and just put yourself out there because there are incredible deals to be had.

And as Warren Buffett says, be fearful when others are greedy and be greedy when others are fearful. And this is a fearful market right now. We don't know what's going to happen. And it's the best time to get in and find that golden egg. Yeah. I want to find a golden egg. Right? Needle in the haystack. Exactly. Exactly.

All right. Well, thank you so much for joining us, Lake. I appreciate it. And I will come to your next meetup. I apologize for not showing up earlier. Okay. I'll send you all the details. Excellent. All right. Well, thank you all so much for listening to this episode of the BiggerPockets podcast. We'll see you again in just a couple of days.

Thank you all for listening to the BiggerPockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian Kay. Copywriting is by Calico Content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of

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