Throughout 2018, many have noticed and commented that the real estate market has been going through some changes. As local markets continue to shift, there is a growing trend for investors to purchase, renovate, and rent homes, rather than to fix-and-flip them.
At GROUNDFLOOR, we’re evolving our offerings to match this trend. Today, we are proud to announce a limited release of a brand-new product now available for our customers: BRRR Loans.
What Are BRRR Loans?
BRRR stands for “buy, renovate, rent, refinance” -- in other words, a BRRR Loan is a loan designed for borrowers interested in rehabbing a property to purchase and rent it out. Like our fix-and-flip loans, a BRRR Loan provides financing for a borrower to buy a property and renovate it.
Then, instead of selling the home once renovations are completed to pay back the loan, the borrower rents out the home as a way to increase collateral value and earn additional rental income on the property. Increasing the rental income increases the value of the property. Eventually, with a greater value and an established track record of rental income, the borrower will aim to refinance the loan with longer-term, “permanent” financing -- typically at a lower cost, and with the ability to extract a portion of the gains.
How Do BRRR Loans Work?
The lifecycle of a BRRR Loan is much the same as our regular fix-and-flip loan offering, with one main difference: the length of the loan term. Whereas our fix-and-flip loans tend to have a short loan term (generally 12 months), our BRRR Loan terms can stretch to two years or more.
In order to create investment opportunities in a loan with such a lifespan, GROUNDFLOOR structures the loans with multiple extension options to provide borrowers and investors alike with greater flexibility. For example, GROUNDFLOOR can break up a given BRRR Loan into several short-term LROs, usually of around 6 months. Investors are able to invest in and receive a payout over this shorter period. GROUNDFLOOR uses its own bridge financing to repay investors upon the maturity of the LROs while we offer the next series of LROs on the same underlying loan. Investors can decide to reinvest into the next phase of the BRRR Loan, or take the payout and invest in another loan altogether.
To read more about the typical lifecycles of GROUNDFLOOR loans, please refer to this blog post.
What Are The Benefits of a BRRR Loan?
The main benefit of choosing a GROUNDFLOOR BRRR Loan for borrowers looking to renovate and rent properties is that we are able to accommodate a longer loan term, resulting in more flexibility for the borrower.
For investors, there are also many reasons to allocate capital to BRRR loans on our platform. First, as a general rule, it’s always a good idea to diversify investments, as this helps to mitigate risk and safeguard your portfolio against market volatility. BRRR Loans in particular have fewer inherent risks associated with them, as the loans are backed up by multiple properties -- namely, the rental units -- rather than just one as with a typical fix-and-flip loan. Furthermore, these loans are only extended to our more experienced borrowers, which further lowers the risk profile. These loans are a great choice for investors looking to offset some of their riskier investments with a more stable one.
The flexibility BRRR Loans offer borrowers also provides benefits to investors as well. The short-term loan periods provide investors with multiple opportunities to exit or continue longer-term with a principal or project that is performing well, which in turn offers them a greater degree of control over their money. Finally, since our BRRR Loans are specifically geared towards properties that will be rented out, the loans are a great option for investors interested in being paid out via the monthly payment model, as the rentals provide a steady monthly cash flow that the borrowers can use to pay off monthly interest payments.
How Can I Get Started?
If you are a borrower interested in exploring our BRRR Loan offering, we invite you to head over to our website to fill out an initial rate quote form. A member of our team will follow up with you to get more details and to see if our BRRR Loan would be a good fit for your proposed project.
If you are an investor looking to invest in a BRRR Loan, log into your GROUNDFLOOR Investor Account, check out the loans currently funding on our platform.
We hope this has given you a better understanding of this new loan offering. Please let us know if you have any questions by commenting below or by dropping us a line at support@groundfloor.us.
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