Secure Your Financial Future: 10 Best BRRRR Markets for Real Estate Investment in 2023

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Introduction

With 2023 just around the corner, it's crucial to have a solid understanding of which markets offer the potential for maximum returns and stability.

Enter the BRRRR method – an investment strategy that maximizes cash flow through buying, rehabbing, renting out, refinancing properties, and repeating these steps in lucrative rental markets.

In this blog post, we'll reveal our top 10 best BRRRR markets in 2023 based on key factors such as population growth, job growth rates, and landlord-friendly laws while providing vital market information for each location.

Key Takeaways

 

• The BRRRR method is a popular real estate investment strategy that involves buying distressed properties, rehabilitating them, renting them out, refinancing, and repeating the process to build equity in rental property portfolios while generating passive income.
• Location, economy, vacancies and listings, and future development are crucial factors to consider when investing in rental properties with the BRRRR method. Markets with population growth trends and job diversification have shown potential for strong returns on investment through increased demand for rental housing.
• Cleveland OH, Birmingham AL, Dayton OH Memphis TN Allentown PA South Bend IN St Louis MO Buffalo NY Pittsburgh PA; Augusta GA made it to the top 10 best BRRRR markets for real estate investment in 2023 based on various factors such as attractive price-to-rent ratios and landlord-friendly laws. These locations offer promising opportunities for investors looking to maximize their returns on long-term residential rentals.

 

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What Is The BRRRR Method?

The BRRRR Method is a popular real estate investing strategy that stands for Buy, Rehab, Rent, Refinance, and Repeat. This approach allows investors to quickly build their rental property portfolio while maximizing return on investment.

The first step involves purchasing a distressed property at a discount price.

After buying the property, the investor will make necessary renovations and improvements to increase its overall value and appeal to potential tenants. Once the rehab work is completed, they rent it out at an attractive rate that generates positive cash flow from rental income.

With a steady stream of passive income in place, they refinance the property with a new mortgage based on its increased after-repair value (ARV). This allows them to essentially "pull out" their initial investment capital while maintaining ownership of the asset.

Finally, by repeating this process multiple times across numerous properties, savvy investors can expand their portfolios rapidly without tying up large amounts of capital indefinitely.

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Factors Affecting Rental Property Investment

Location, economy, vacancies and listings, and future development are crucial factors to consider when investing in rental properties.

Location

Location is undoubtedly one of the most critical factors to consider when investing in real estate using the BRRRR method. A property situated in an attractive neighborhood with strong market fundamentals is more likely to provide higher rental income and overall returns on investment.

For instance, cities like Raleigh (North Carolina) and Phoenix (Arizona) have been experiencing increasing home values and rent prices since the start of the pandemic due to their booming tech industries.

Investors looking for promising markets should prioritize areas poised for steady population growth or industry diversification while taking into account local property values.

Economy

The economy plays a crucial role in determining the potential success of BRRRR real estate investments. A thriving local economy, characterized by job growth, industry diversification, and income growth, paves the way for an increase in property values and rental demand.

On the other hand, areas experiencing economic stagnation or decline may struggle with high vacancy rates as people move to seek better opportunities elsewhere.

An example is New York City during COVID-19 when landlords had difficulty increasing rents amid a lack of demand; however, with pandemic effects wearing off and more people returning to offices now, it becomes an attractive market once again as evidenced by rising rent prices.

Vacancies & Listings

Vacancies and listings are essential factors to consider when investing in rental properties. High vacancy rates can indicate a lack of demand or high turnover, resulting in lost rent and increased expenses for property management.

For example, Seattle's housing market is experiencing record-low inventory levels with an increase in demand, leading to a decrease in vacancies and higher rents. Salt Lake City has also experienced one of the fastest appreciation rates nationwide due to high demand from both renters and homebuyers.

Future Development

Future development is an important consideration for real estate investors when deciding on a market to invest in. Investing in areas with future infrastructure projects, such as new highways or public transportation systems, can lead to increased property values and rental demand.

For example, the expansion of light rail systems in cities like Seattle or Nashville may make surrounding neighborhoods more attractive to renters and potential homebuyers.

Furthermore, factors such as job creation and industry diversification also play into a market's future development potential. Areas that have seen consistent job growth across multiple industries are likely to continue attracting residents looking for employment opportunities.

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The Top 10 Best BRRRR Markets For Real Estate Investment In 2023

The article provides a list of the top 10 best BRRRR markets for real estate investment in 2023, including Cleveland, OH, Birmingham, AL, Dayton, OH, Memphis, TN, Allentown, PA, South Bend IN., St.

Cleveland, OH

Cleveland, OH is a top market for BRRRR real estate investment in 2023. Despite facing economic challenges in the past, Cleveland has potential as a turnaround city and offers good cash flow potential with a price-to-rent ratio of 7.6.

Strong rental demand and low housing inventory make it an attractive option for rental property investments, while private equity investments are also on the rise in Cleveland's real estate market.

Birmingham, AL

Birmingham, AL is among the top 10 best BRRRR markets for real estate investment in 2023. With a price-to-rent ratio of 8.4 and a property tax rate of 0.65%, Birmingham offers an attractive investment opportunity for those looking to build a rental portfolio.

Investors using the BRRRR method can recapture equity in their property via refinancing after buying distressed properties, rehabbing them, renting them out to tenants, and then repeating the process.

Long-term investors could achieve success by utilizing market conditions that favor investing in cities like Birmingham where metrics such as population growth, income growth, job growth or median rent are rising while crime rates and vacancy rates decline over time.

Dayton, OH

Dayton, OH is one of the top 10 best BRRRR markets for real estate investment in 2023. With a price-to-rent ratio of 9.3, it's an attractive market for cash flow investors.

The cost of a $1k/month rental property in Dayton is approximately $111k, making it affordable for beginners. Dayton has a population of 137k and a metro population of 814k.

The city's economy is led by the aerospace industry with numerous research & development labs and an air force base that provide job opportunities to its residents. Additionally, Dayton has landlord-friendly tenant laws which make it easier for real estate investors to operate without excessive regulations.

Memphis, TN

Memphis, TN is one of the top 10 best BRRRR markets for real estate investment in 2023. It's an affordable market for rental properties, making it a desirable location for real estate investors.

Rental rates in Memphis are increasing with an 8.3% increase in rents over the last 12 months.

Furthermore, there's high demand for rental properties due to a shortage of affordable housing options caused by Memphis's economy as job growth and diversification keep on thriving in this Southern city.

Real estate investors can take advantage of these factors while maintaining profitable rental income streams within their portfolio.

Allentown, PA

Allentown, PA is a potential market for cash-flow investors looking to invest in real estate. With a price-to-rent ratio of 10.5, it's included in the Top 10 Best BRRRR Markets for Real Estate Investment in 2023 list.

The city has a population of 125k and a metro population of 861k with an impressive population growth rate of 6.6% since 2010.

Despite facing hard times after manufacturing declined post-1960s, Allentown now boasts a growing economy based on services, transportation, and healthcare sectors.

Additionally, it has renter-friendly tenant laws and low flood risk (just around six percent).

South Bend, IN

South Bend, IN may not be the first city that comes to mind when thinking about real estate investment, but it is a hidden gem for implementing the BRRRR method.

This Midwestern city has experienced growth in recent years, with investment pouring into its riverfront area and technology sector. Additionally, South Bend offers opportunities to purchase distressed properties at discounted prices, which makes it an ideal location for executing the BRRRR method successfully.

However, investors should keep in mind that heavy snowfall due to proximity to Lake Michigan may increase expenses related to maintenance and utilities.

St. Louis, MO

St. Louis, MO is a top BRRRR market for real estate investment in 2023. The city's flourishing economy and high demand for rental properties make it an attractive destination for investors looking to build their portfolio.

St.

The city also has a diverse job market, with several Fortune 500 companies calling St. Louis home. Additionally, the city has a stable population and healthy real estate market, providing investors with long-term stability.

With top-ranked universities and a thriving healthcare industry, St. Louis offers plenty of opportunities for growth and development.

Buffalo, NY

Buffalo, NY has emerged as one of the top 10 best BRRRR markets for real estate investment in 2023. With affordable property prices and a high demand for rental properties, investors can generate income quickly through the BRRRR method.

The average rent for a one-bedroom apartment in Buffalo is $1,100, and steady growth has been observed in its real estate market over the past few years. Furthermore, Buffalo's diversified economy offers stable job opportunities for residents and attracts new inhabitants to the area.

The government is investing in revitalizing neighborhoods and improving infrastructure, offering opportunities to increase property values in the future.

Pittsburgh, PA

Pittsburgh, Pennsylvania, is rapidly emerging as one of the best BRRRR markets for real estate investment in 2023. Pittsburgh's lower property acquisition and rehab costs make it an attractive location for investors compared to other major cities such as New York or San Francisco.

The city's rental market is landlord-friendly with low property taxes and a high percentage of renters compared to homeowners. Additionally, the tech and healthcare industries' growth has driven demand for rental properties in recent years, making it an excellent place to invest in long-term cash flow rentals.

With its diverse economy and strong job market, Pittsburgh provides stability and security when establishing a rental portfolio.

Augusta, GA

Augusta, Georgia is a prime location for real estate investors looking to capitalize on the BRRRR method. This southern city offers a strong rental demand across all income levels, making it an attractive option for those interested in building their rental property portfolio.

In addition to its affordability and accessibility via major transportation hubs, Augusta's job growth rate remains steady, which is good news for potential landlords.

Home values and appreciation rates have also been consistently increasing over recent years, signaling promising returns for real estate investors in 2023.

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Other Notable Rental Markets

In addition to the top 10 BRRRR markets for real estate investment in 2023, there are several other notable rental markets worth considering such as Chicago, IL; Cincinnati, OH; and Columbus, OH.

Chicago, IL

While Chicago, IL is not among the top 10 BRRRR markets for real estate investment in 2023, it still remains a notable rental market. Its diverse economy and strong job growth make it an attractive option for investors looking to diversify their portfolio.

Additionally, its relatively high price-to-rent ratio presents opportunities for passive income and long-term equity growth. Real estate agents with BiggerPockets can help navigate the unique aspects of Chicago's rental market and find potential deals that meet your investing criteria.

Cincinnati, OH

Cincinnati, OH is a great market for BRRRR real estate investment due to its stable growth. The city has low unemployment rates and a steadily growing population, which makes it an attractive option for investors looking to capitalize on rental income.

Cincinnati also boasts strong landlord-friendly laws that can help protect your investments and ensure legal compliance. Additionally, the cost of entry into the market is affordable, with median housing prices ranging from $120k-$160k in 2021.

Columbus, OH

Columbus, Ohio is a bustling city that offers excellent real estate investment opportunities. As the state capital, Columbus has a strong job market and booming economy, making it an attractive destination for renters.

Additionally, Columbus is home to several prominent universities, including Ohio State University, which helps to attract students and young professionals seeking housing options.

The city's population continues to grow year over year while affordability remains relatively high compared to other major metropolitan areas.

Grand Rapids, MI

Grand Rapids, MI is a notable rental market that real estate investors should consider when looking to implement the BRRRR method. This bustling city boasts a population growth rate of 1.7% and an unemployment rate of only 3%, making it an attractive location for young professionals and families alike.

In addition, Grand Rapids' thriving downtown area has been undergoing significant development in recent years, with new shops, restaurants, and entertainment options popping up regularly.

Louisville, KY

Louisville, KY is one of the notable rental markets mentioned in this article related to the top 10 best BRRRR markets for real estate investment in 2023. The city's real estate market is facing a significant challenge due to local inventory levels, with demand outweighing supply.

This lack of inventory has caused an 8.1% increase in rents over the last 12 months, making it a great time for investors looking for stable cash flow through rental income.

However, good real estate agents who provide informative comps are essential for successful investing in Louisville's competitive market.

New York, NY

New York, NY is not included in the top 10 BRRRR markets for real estate investment in 2023 due to its high cost of living and lack of cash flow.

The city's current price-to-rent ratio may not be suitable for the BRRRR method, which focuses on getting the original investment back out of the property through rental income and appreciation potential.

However, there are still viable opportunities for real estate investing in New York City, such as purchasing properties at a discount during economic downturns or investing in high-demand areas with landlord-friendly laws.

Phoenix, AZ

Phoenix, AZ is a noteworthy rental market for the BRRRR method due to its growing population and job growth, a thriving tech industry, and relatively affordable housing prices.

In fact, it has seen a 32.0% increase in rents since the beginning of the pandemic, making it an attractive location for real estate investment.

These favorable conditions provide great opportunities for investors looking to acquire distressed properties that they can rehab and rent out using the BRRRR method.

Spokane, WA

Spokane, Washington is a city that should be on any real estate investor's radar. With a price-to-rent ratio of 10.4 and an average cost of $121K for a rental property generating $1K in monthly rent, it presents an affordable market for investors to enter.

The city has a population of 222k with steady growth at 2.5% since 2010 and its economy is driven by manufacturing, healthcare, and education sectors which bodes well for job stability too.

Spokane also boasts landlord-friendly tenant laws and low flood risk at just 2%, making investment stress-free.

Raleigh, NC

Raleigh, North Carolina is a strong contender for real estate investment using the BRRRR method in 2023. With a population of nearly half a million and an expanding job market, Raleigh boasts one of the fastest-growing economies in the United States.

Moreover, Raleigh has landlord-friendly laws and diverse industries that make it an ideal location for rental properties. Despite some challenges with lender policies during the pandemic, refinancing can still be achieved with proper planning and execution.

In addition to its economic strength, Raleigh also offers potential growth opportunities as home values and rents have increased significantly since the onset of COVID-19.

San Diego, CA

San Diego, California is one of the notable rental markets included in the list of the top 10 best BRRRR markets for real estate investment in 2023. It has seen a surge in demand due to buyers and renters prioritizing cities with warmer weather during the pandemic.

This increase in demand has driven up rents and home values over the last three years. Despite its high cost of living, San Diego remains a popular location for investors looking to capitalize on its attractive rental market conditions.

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Pros And Cons Of The BRRRR Method

The BRRRR method has several pros, including the potential for high returns, the ability to recycle capital, and forced appreciation.

Pros

The BRRRR method offers several potential benefits for real estate investors. One advantage is the potential for high returns, as the strategy involves purchasing distressed properties at a lower price and increasing their value through renovations or upgrades before renting them out.

Additionally, the ability to recycle capital allows investors to use profits from one property to finance the purchase of another, leading to even greater returns over time.

Finally, by adding value through improvements and forced appreciation, investors can increase equity in their rental portfolio and generate more passive income in the long run.

Potentially High Returns

One of the biggest advantages of using the BRRRR method for real estate investing is its potential for high returns. By purchasing a distressed property below market value, you can build equity through renovations and increase rental income by adding desirable amenities or repairing any existing issues.

Ultimately, this can lead to a higher appraisal value and the ability to refinance at a lower interest rate, providing more cash flow each month. However, it's important to keep in mind that unexpected expenses or incorrect calculations can quickly eat away at potential profits with this method.

Ability To Recycle Capital

One of the main benefits of using the BRRRR method for real estate investment is its ability to recycle capital. This means that investors can take money earned from one property and use it to finance the purchase or rehab of another property, allowing them to continue investing without using their own funds.

By recycling capital in this way, investors can grow their rental portfolio faster than they would be able to otherwise. They also have more options for reinvesting profits because they don't need to wait as long for returns on investment before making additional purchases.

However, there are risks involved such as misjudging ARV (After Repair Value) which could lead to losses instead of gains if proper analysis isn't done beforehand.

Forced Appreciation

Forced appreciation is a key feature of the BRRRR method of real estate investing. This involves purchasing a property below its market value and then increasing its value beyond the purchase price through renovations and other improvements.

The goal is to quickly build up equity in the property, which can then be used to invest in additional properties or for other investments.

However, it's important to note that not all renovation costs will result in an increase in property value. Investors need to carefully consider which upgrades will have the most impact on their return on investment (ROI).

Additionally, unexpected repairs or code compliance issues can pose challenges for investors using this method.

Cons

While the BRRRR method can potentially yield high returns, there are also several cons to consider. One challenge of the BRRRR method is its complexity, as it involves a multi-step process that requires extensive research and careful planning.

Another major risk in the BRRRR method is miscalculation. In some cases, refinancing properties may be difficult due to lower loan-to-value ratios from lenders or unexpected expenses during repairs that may exceed budgeted costs.

Moreover, functional obsolescence caused by outdated design or features may decrease a property's value in some markets.

Complexity Of The Process

Implementing the BRRRR method is not a simple process, as it can involve multiple stages and require different skill sets. It takes time to research and locate good investment properties that fit the criteria for this method, including location, price-to-rent ratios, and future development potential.

Rehabbing the property can also be complex and requires careful budgeting and management of resources. In addition, refinancing involves navigating changes in lending practices and criteria while ensuring that all necessary documentation such as updated appraisals, and copies of lease agreements are in place before approaching a bank or lender.

Successful implementation of this strategy also requires networking with local professionals such as real estate agents who can help identify good deals on distressed properties or connect investors with reliable contractors for rehab work.

Need For A Strong Network

To succeed as a real estate investor, having a strong network is crucial. Networking with other professionals in the industry can help investors find potential deals and connect with property managers, contractors, and lenders.

BiggerPockets is an online community that offers resources and tools for real estate investors, including access to off-market deals and vendor recommendations.

The BiggerPockets forum provides specific advice on the BRRRR method as well as other popular investment strategies.

Risk Of Miscalculation

One of the biggest risks associated with using the BRRRR method in real estate investing is a miscalculation. This can occur at any stage of the process, from underestimating rehab costs to overestimating rental income.

For example, if an investor fails to accurately assess the after repair value (ARV) of a property or neglects to factor in unexpected expenses like repairs or vacancies, they could end up losing money on their investment.

To mitigate the risk of miscalculation, it's crucial for investors to work with knowledgeable professionals who can help guide them through each step of the process.

A good real estate agent who provides informative comps and a reputable property management company are essential for successful real estate investing using the BRRRR method.

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Tips For Successful BRRRR Investing

To ensure successful BRRRR investing, it's important to understand the local market, network with local professionals, have an exit strategy, and budget for unexpected expenses.

Understand The Local Market

To be successful in the BRRRR method, it's important to have a deep understanding of the local real estate market. This means identifying key drivers of property values in your chosen location and staying up-to-date on changes that could impact them.

One useful strategy is to work with local professionals who can provide valuable insights into the local market. Real estate agents with experience in the area can help you identify off-market deals and determine fair market value for properties.

Property managers can offer guidance on tenant demographics and average rents. And mortgage brokers or lenders familiar with the local market may be better equipped to find financing options that fit your needs.

Network With Local Professionals

One key tip for successful BRRRR investing is to network with local professionals. This includes building relationships with real estate agents, appraisers, contractors, property managers, and lenders who have experience in the local market.

By working with these professionals, you can gain valuable insights into the current state of the market and identify potential investment opportunities.

BiggerPockets offers a platform where investors can connect with local professionals through its member search function and vendor directory. Members can also attend events and meetups hosted by BiggerPockets or create their own gatherings within their local areas to expand their network.

Have An Exit Strategy

It is important to have an exit strategy when investing in rental properties using the BRRRR method. Without one, you may find yourself stuck with a property that isn't performing as well as you had hoped or isn't meeting your investment goals.

Having an exit strategy also allows investors to be proactive about potential market changes or shifts in their personal circumstances. For example, if there is an economic downturn or interest rates rise dramatically, having a plan in place can help mitigate losses and ensure your investments continue to perform well over time.

Budget For Unexpected Expenses

It's crucial to budget for unexpected expenses when using the BRRRR method for real estate investing. While this strategy can lead to high returns and forced appreciation, unexpected repairs or code compliance issues can quickly deplete a budget and force a sale before completion.

That's why having a contingency fund is essential to cover unforeseen costs that may arise during the rehab phase of the process. For example, if you plan on purchasing distressed property that requires significant repairs, make sure to factor in additional expenses like permits, inspections, and new appliances into your budget.

Remembering these costs upfront will ensure you're prepared for any surprises down the road and help prevent financial setbacks and costly mistakes.

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Conclusion

In conclusion, the BRRRR method is an excellent way to build wealth through real estate investing. By purchasing distressed properties, rehabbing them, renting them out, and refinancing them, investors can generate passive income and build equity in their rental portfolio.

The top 10 best BRRRR markets for real estate investment in 2023 include Cleveland, OH; Birmingham, AL; Dayton, OH; Memphis TN; Allentown PA; South Bend IN; St.

Louis MO; Buffalo NY; Pittsburgh PA; and Augusta GA. These markets offer attractive price-to-rent ratios, landlord-friendly laws, and strong demographic trends such as population growth and job growth.

FAQs:

1. What is the BRRRR strategy for real estate investment?

BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. It's a popular investment strategy in which investors buy low-cost properties that need renovation work, rehab them to increase their value, rent them out to tenants after the renovations are complete, refinance the property at a higher value than what they paid initially, and then use that money to invest in more properties.

2. How were the top 10 BRRRR markets chosen?

The top 10 BRRR markets were chosen based on factors such as job growth rates, population growth rates, average home prices versus rental income potential, and overall economic stability within those cities or regions.

3. Is it necessary to be an experienced investor before starting with BRRRR investments?

While experience can be helpful in any type of investing venture - it is not mandatory when starting out with BRRR investments because there are many resources available online including blogs & podcasts from successful investors who share tactics used throughout their own journeys; making it easier than ever before for beginners looking gains traction quickly within this space regardless if lacking prior knowledge/expertise.

4. What are some advantages of using the BRRR approach instead of traditional buy-and-hold strategies?

One major advantage of using the BRRR approach over traditional buy-and-hold methods is its ability to allow you to recycle capital more quickly by utilizing refinancing opportunities once your property has significantly increased in value due to both renovation efforts & changes within surrounding neighborhoods/markets while still keeping cash-flow constant (or increasing); enabling you purchase additional promising investment properties faster without constantly having sought new funding sources each time another opportunity arises. Additionally- relying upon short-term loans rather than long-term mortgages makes it possible to avoid taking too much risk upfront as well since loan terms can typically last between six months up two years – allowing enough time to recover initial funds spent purchasing homes without becoming too overextended.

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