Introduction
Two of the most popular real estate investment strategies are house flipping and the BRRRR method. Both can be highly profitable, but they serve different investment goals and work best in different scenarios. This article will compare these strategies to help you decide which one is right for your situation.
The Flip Strategy: A Quick Overview
House flipping involves:
- Buying a property below market value
- Renovating to increase its value
- Selling quickly for a profit
The goal is to complete the entire process in the shortest time possible, typically 3-9 months.
The BRRRR Strategy: A Quick Overview
BRRRR stands for:
- Buy: Purchase a property below market value
- Rehab: Renovate to increase value and rentability
- Rent: Find quality tenants
- Refinance: Cash-out refinance based on the new, higher value
- Repeat: Use the cash pulled out to buy another property
BRRRR is a long-term wealth-building strategy that allows investors to recycle their capital while building a portfolio of cash-flowing rental properties.
Key Differences Between BRRRR and Flipping
1. Time Horizon
Flipping: Short-term strategy (months)
BRRRR: Long-term strategy (years)
2. Income Source
Flipping: One-time profit from the sale
BRRRR: Ongoing rental income plus eventual refinance capital
3. Tax Implications
Flipping: Profits taxed as ordinary income or self-employment income (higher rates)
BRRRR: Rental income can be offset by depreciation, mortgage interest, and expenses, plus refinance proceeds are not taxable
4. Scaling
Flipping: Need new capital for each project
BRRRR: Can recycle capital through refinancing to purchase additional properties
5. Risk Profile
Flipping: Higher short-term risk (market changes, renovation overruns)
BRRRR: Lower short-term risk but longer exposure to market cycles
Which Strategy Is Better For You?
Choose Flipping If:
- You need cash now rather than long-term wealth building
- You prefer completing projects and moving on
- You don't want to deal with tenants and property management
- You have construction expertise or reliable contractors
- You're in a rapidly appreciating market with high demand
Choose BRRRR If:
- You're focused on building long-term wealth
- You want passive income from rentals
- You plan to grow a large portfolio with limited capital
- You're comfortable with property management
- You're investing in areas with strong rental demand
A Hybrid Approach
Many successful investors don't exclusively use one strategy. A hybrid approach might include:
- Flipping some properties for capital while building a BRRRR portfolio
- Starting with flips to build capital, then transitioning to BRRRR
- Using BRRRR for properties in strong rental markets and flipping in areas better suited for retail buyers
Case Study: Same Property, Different Strategies
Let's look at how the numbers might work for the same property using both strategies:
Property Details:
- Purchase Price: $100,000
- Renovation Cost: $30,000
- After Repair Value (ARV): $175,000
- Monthly Rent: $1,500
Flip Scenario:
- Sale Price: $175,000
- Holding and Selling Costs: $15,000
- Total Investment: $130,000
- Profit: $30,000
- Time: 6 months
- ROI: 23% (over 6 months)
BRRRR Scenario:
- Total Investment: $130,000
- Refinance at 75% LTV: $131,250
- Cash Returned: All initial investment
- Monthly Cash Flow: $300 (after all expenses)
- Annual Cash Flow: $3,600
- Cash-on-Cash Return: Infinite (since all cash was recovered)
- Plus: Property appreciation and mortgage paydown over time
Conclusion
Both flipping and BRRRR can be effective real estate investment strategies when executed correctly. The best choice depends on your financial goals, risk tolerance, time availability, and market conditions. Many successful investors eventually incorporate both strategies into their portfolios, using each when and where it makes the most sense.
Wondering which strategy would work best for your next investment? Use Flip Smart's strategy comparison calculator to run detailed projections for both approaches and see which aligns better with your investment goals.
