Buy refurbish refinance rent also known as BRRR is a popular property investment strategy that is used by experienced investors, landlords and developers. It's a cyclical process allowing you to recycle your deposit money by using the same money for further purchases to build a Buy to Let portfolio of rental properties.
In this article, we explain what the BRRR method is, how it works, and what the benefits and challenges of using it are.
FAQ'S ABOUT BUY REFURBISH REFINANCE RENT
Q: What is the BRRR strategy?
The BRRR strategy is a real estate investment technique used where a property is purchased and upgraded to increase its value. It is then remortgaged to pull out equity, and finally rented out to generate monthly income.
Q: How does the BRRR strategy work?
To implement the BRRR strategy, a property below market value or in need of upgrading is identified. It is then purchased and the necessary upgrades are carried out to increase its value, then the refinance is implemented based on its new higher valuation. Finally, the property is leased to tenants to generate a steady stream of monthly income.
Q: What are the benefits of using the BRRR strategy?
The BRRR strategy allows leveraging the deposit money more effectively by recycling the initial investment multiple times. By adding value through upgrading, the rental income can be increased as well as the overall ROI. Additionally, refinancing allows pulling out some of the equity that has been created, which can be reinvested in further purchases.
Q: Is the BRRR strategy suitable for all types of properties?
The BRRR strategy is most commonly used for building residential property portfolio's, such as single-family homes or multi-unit buildings. However, it can potentially be applied to commercial properties as well, depending on the potential for adding value and generating income.
Q: How can I get started with the BRRR strategy?
To get started with the BRRR strategy, you should carry out detailed research of the real estate market, renovation costs, and bridging finance options. It's important to create a solid property strategy, and work with a team of professionals, such as solicitors, real estate agents, contractors, and an experienced BRRR loan broker to ensure the purchase finance and a solid exit strategy is in place to successfully implement the strategy. Remember to carefully evaluate each property's potential for renovation and monthly income before making any purchase decisions.
BUYING THE PROPERTY
The first step is to find a property that has potential. A good property deal that fits the BRRR method could be a below market value purchase, in a location with good rental demand, and in need of upgrading.
To buy a property, you will need some money for the deposit and the purchase costs, although in certain situations it will be possible to borrow up to 100% of the purchase price. You can use your own money, or an experienced commercial loan broker can arrange a short-term bridging loan that is designed to implement the process between buying a property and refinancing it or selling it.
When implementing the property strategy, you should inspect the property and get a surveyor to assess its condition, provide a current valuation, an after renovation value and potential rental value. You should negotiate the best possible price and terms with the seller, and aim to complete the purchase as quickly as possible.
CARRYING OUT THE REFURBISHMENT
The second step is the refurbishment. This could involve cosmetic changes, such as painting, flooring, and decorating, or more costly works, such as installing a new kitchen, bathroom, or heating system. The extent and cost will depend on the condition and size of the property, and your budget and goals.
The aim is to make it more attractive and functional for tenants and buyers, and to increase its desirability. You should plan the refurbishment phase carefully and hire reliable and qualified contractors to do the work, and ensure the work complies with the building regulations.
REFINANCING THE PROPERTY
The third step, after completion of the renovation is to implement the refinance strategy and get a new buy to let mortgage based on the higher value. This is where you can pull out your deposit money and re-use it for the next BRRR deal. The goal of the refinance is to take out enough money to recover your initial deposit and refurbishment costs, have a positive cash flow and create and leave equity within the property.
To refinance, you would contact your experienced commercial loan broker to begin the process of instructing the type of valuation required based on the new higher valuation when applying for a buy to let mortgage.
The amount of money you can refinance and cash out will depend on the new value of the property, the loan-to-value ratio, and the interest rate. The loan-to-value ratio is the percentage of value that the Buy to let lender is willing to lend.
FINDING A SUITABLE TENANT
The final step in completing the BRRR strategy is to rent out the property and collect the monthly income. This is where you can enjoy the passive income and the capital appreciation of your asset. You will need to find and screen tenants, prepare the tenancy agreement, and manage the property. You can do this yourself, or hire a letting agent. A letting agent will help you with the marketing, administration, and maintenance, and also help you comply with landlord responsibilities.
CASE STUDIES: REAL-LIFE APPLICATIONS OF THE BRR STRATEGY
Case Study 1
2 Bedroom Flat Glasgow
Buy: The developers used the BRRR method when purchasing a run-down 2-bedroom flat in Glasgow for £70,000 at auction, significantly below the local market value. The property was un-mortgageable due to its poor condition, so they used short-term bridging finance to help with the purchase.
Refurbish: They spent £20,000 on upgrading, Installing a new kitchen and bathroom, repainting and re-carpeting the entire flat, including damp proofing. Total Investment: £90,000 (£70,000 purchase + £20,000 refurbishment).
Refinance: After upgrading, the flat was revalued at £130,000 and refinanced at 75% of the new value, releasing £97,500. This covered all of their initial costs.
Rent: The flat was rented for £850/month, resulting in a monthly profit of £270 after accounting for the mortgage and other expenses.
Outcome: The developers successfully recycled their capital to fund another BRRR project, while generating positive cash flow and benefiting from long-term asset appreciation.
Case Study 2
3 Bedroom Terraced House Manchester.
Buy: The investor purchased a tired 3-bedroom terraced house in Manchester for £75,000 via an estate agent. The property required significant upgrading but was structurally sound, making it a good BRRR purchase. A bridging loan was used to help fund the purchase.
Refurbish: He allocated £30,000 to renovations, installing a modern kitchen and bathroom, upgrading the central heating system, redecorating and adding new flooring. Total Investment: £105,000 (£75,000 purchase + £30,000 refurbishment).
Refinance: After completion, the property was revalued at £150,000 and refinanced at 75% of the new value, withdrawing £112,500. This covered the purchase and refurb costs.
Rent: The house was leased to a family for £975/month, generating a profit of £300/month from the rental income after deducting all expenses.
Outcome: The initial deposit money was recovered, enabling him to replicate the BRRR strategy with another property. He also created equity and secured a steady rental income.
WHAT ARE THE BENEFITS OF THE BRRR METHOD?
• You can buy more properties with less money, by recycling your money and using leverage.
• You can increase the value and equity of your properties, by adding value through renovation.
• You can generate passive income and capital appreciation, by renting out your properties and benefiting from the market growth.
• You can diversify your portfolio and reduce your risk, by investing in different locations.
• You can scale up your business and achieve your financial goals faster, by repeating the process and buying more properties.
WHAT ARE THE CHALLENGES OF THE BRRR METHOD?
• You need to have some cash and access to funding, to buy and upgrade the properties.
• You need to have the skills and knowledge, to find, analyse, and manage the projects.
• You need to have the time and patience, to complete the upgrading and the refinancing.
• You need to have a contingency plan and a buffer, to deal with any unexpected costs, delays, or problems.
HOW TO APPLY: A STEP-BY-STEP-GUIDE
Consult with an Expert Broker:
We can guide you through the intricacies of the process, help you explore available options, and provide personalised guidance.
Who Is It For?
• First time buyers and experienced Developers and Landlords.
Application Process:
• Speak to a BRRR strategy expert.
• Provide Documentation.
• Financial projections.
Receive Your Offer:
If your project aligns with the criteria, you’ll receive initial terms within 24 hours. The BRRR strategy has a lot of moving parts, preparation and professional guidance are essential for a successful application.
Speak to a BRRR Finance Expert
The buy refurbish refinance rent strategy is a powerful and proven method of investing in property and building your portfolio. It involves buying, renovating, refinancing, and renting properties, and repeating the process. It allows you to recycle your money, add value to your assets, generate passive income, and achieve your financial goals.
