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 plan and recycle your deposit money by using the same money for further property purchases to build a portfolio of rental properties.
In this article, we explain what BRRR is, how it works, and what the benefits and challenges of using it are.
FAQ'S ABOUT BUY REFURBISH REFINANCE RENT
Q: How does the BRRR strategy work?
It's a real estate technique used when a property is purchased using a bridging loan, and upgraded to increase its value. Then, a buy to let mortgage is put in place to repay the bridging finance and pull out some or all of the investors deposit and refurb costs, and finally the property is then rented out to generate a steady stream of income.
Q: What are the benefits of using the BRRR strategy?
The technique allows leveraging the deposit money more effectively by recycling the initial investment multiple times. By improving the property through upgrading, the rental income can be increased, as well as the overall ROI. Additionally, the refinance allows pulling out some of the equity that has been created, which can be reinvested in the next project.
Q: Is BRRR suitable for all types of properties?
The strategy is most commonly used for building residential property portfolio's, such as flats, single-family homes or multi-unit buildings. However, it can be applied to commercial properties as well, depending on factors such as the potential for improvement and generating income.
Q: How can I get started and finance a BRRR project?
To get started, you should carry out detailed research of the local house prices, renovation costs, and bridging finance options. It's important to create a solid strategy, and liaise with a team of professionals, such as solicitors, real estate agents, contractors, and an experienced BRRR loan broker to ensure the bridging finance and a solid exit strategy is in place to successfully implement the strategy. Remember to carefully research each property before making any buying decisions.
BUYING THE PROPERTY
The first step is to find a property that fits the BRRR method, it could be below market value, in a location with good rental demand, and in need of refurbishment.
To fund the property purchase, you can arrange a short-term bridging loan through a commercial broker, you'll need money for the deposit, although finance up to 100% is sometimes possible. A traditional mortgage wouldn't be suitable for uninhabitable properties or if the property is for sale at auction, as the required timescales are too short for a traditional mortgage lender to complete.
When implementing the strategy, you should inspect the property and get a surveyor to assess its condition, provide a current valuation, an after renovation valuation and the potential rental value. You should negotiate the best possible price and terms with the seller, and aim to complete as quickly as possible.
CARRYING OUT THE REFURBISHMENT
The second step is the refurbishment stage. 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 renters and buyers, and to increase its value through refurbishment. You should plan the refurbishment phase carefully and hire reliable and qualified contractors to do the work, and ensure it complies with the building regulations.
REFINANCING THE PROPERTY
The third step, after completion of the renovation is to implement the refinance strategy by completing the remortgage to a BTL mortgage based on the new higher valuation. This is where you repay the initial loan and recover your financial input to re-use in the next buy refurbish refinance rent deal. The goal of the remortgage is to repay the finance, recover your initial deposit money and refurbishment costs, have a positive cash flow and create and leave equity within the property.
To refinance, you would contact your experienced commercial finance 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 mortgage value of the property, the loan-to-value ratio, and the interest rate. The LTV ratio is the percentage that the Buy to let mortgage lender is willing to lend.
FINDING A SUITABLE TENANT
The final step in completing the strategy is to rent out the property and collect the 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 market value. The property was not suitable for a traditional mortgage due to its poor condition, so short-term bridging finance was used 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 refurb).
Refinance: After upgrading, the flat was revalued at £130,000 and refinanced with a BTL mortgage at 75% LTV, releasing £97,500. This covered their initial costs.
Rent: The flat was rented for £850/pcm, resulting in a monthly profit of £270 after accounting for the mortgage and other expenses.
Outcome: The developers successfully recycled their capital to start another project, while generating positive cash flow and benefiting from long-term asset appreciation.
Case Study 2
3 Bedroom Terraced House Manchester.
Buy: The investor bought a tired 3-bedroom terraced house in Manchester for £75,000 via a local estate agent. The property required significant upgrading but was structurally sound, making it a good BRRR deal. A bridging loan was used to help with 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 refurb).
Refinance: After completion, the property was revalued at £150,000 and refinanced at 75% LTV, withdrawing £112,500. This covered the purchase and refurb costs.
Rent: The house was leased to a family for £975/pcm, generating a profit of £300/month from the rental income after deducting all expenses.
Outcome: The initial deposit money was recovered, enabling the investor to replicate the strategy with another property while securing 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 of your properties, by improving through renovation.
• You can generate passive income and capital appreciation from 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 manage 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 lender options, and provide personalised guidance.
Who Is It For?
• First time buyers, experienced Developers and Landlords.
Application Process:
• Speak to a BRRR finance expert.
• Provide Documentation.
• Financial projections.
Receive Your Offer:
If your project aligns with the criteria, you’ll receive initial terms within 24 hours. The strategy has a lot of moving parts, preparation and professional guidance are essential for a successful application.
Speak to a BRRR Expert
The buy refurbish refinance rent technique 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.
