BRR Property Deals: Buy Refurb Refinance in the UK

Nikka Sulton

BRR Property Deals: Buy Refurb Refinance in the UK

The Buy Refurbish Refinance (BRR) strategy is a highly popular property investment approach in the UK, and it’s a personal favorite. It combines the benefits of buy-to-let investments while maximizing returns by reducing the total invested capital after refinancing and increasing monthly rental income.

If you’re new to this strategy, don’t worry. Understanding BRR isn’t too complex, especially if you’re familiar with the basics of buy-to-let investments. If you’re new to the topic, it’s advisable to start with beginner’s guides on buy-to-let.

In this article, we will dive into the details of the BRR strategy, how it works, provide an example of a property using this approach, and explore variations, including the BRRRR method.

What Is Buy Refurbish Refinance (BRR)?

The Buy Refurbish Refinance (BRR) strategy is an investment approach involving the purchase of a property in need of upgrades or renovations. After the property is renovated, it is refinanced at a higher valuation, allowing you to retrieve a significant portion of your invested capital. Additionally, the refurbished property can command a higher rental income.

What is the BRRRR method?

The BRRRR method, short for Buy Refurbish Refinance Rent and Repeat, is essentially the same as the BRR strategy. It involves renovating a property, refinancing it at a higher value, and then renting it out. The only difference is the inclusion of the “Rent and Repeat” steps in the acronym. It’s worth noting that while BRRRR is a common term in the United States, in the UK, we typically refer to it simply as BRR.

How does Buy Refurbish Refinance work?

Find a property in need of modernization

To start, your mission is to locate a property that requires some modernization. This property should still be habitable with basic utilities in working order, like running water, a functioning boiler, and electricity. However, it needs updates to align with contemporary standards.

Crunch the numbers

Property research is a critical aspect of any investment, ensuring you’re content with the property’s potential returns. For BRR properties, this involves a bit more complexity. To assist you in visualizing the numbers, you can access a spreadsheet in our BRR property example later in this guide.

Estimating refurbishment costs might be challenging initially, but as you gain more experience, your estimates will become more precise. From my experience, a complete renovation of a 3-bedroom property in the northern region typically falls within the range of £15,000 to £20,000.

However, if you have significant free time and possess various trade skills, you could potentially reduce the refurbishment cost to around £6,000 to £8,000 by undertaking the work yourself. It’s important to note that self-renovation should only be pursued if you have the necessary experience or are willing to invest time in acquiring the required skills.

Acquire the property

Purchasing a property can be a complex process, so I won’t delve into it here. I recommend checking out our comprehensive guide on this topic. What’s crucial to understand in this context is that, as we’ll be buying with a mortgage, we’re likely to pay the property’s actual value, and the process will take longer compared to a cash purchase. Once you’ve successfully acquired a property in need of modernization, we can proceed to the next phase – the refurbishment.

Renovating the property

The refurbishment phase within the BRR strategy is often considered the most critical and, at times, stressful in achieving a remarkable return on investment. This stage should primarily focus on interior enhancements, with limited structural changes unless they are absolutely necessary. Key tasks involve updating kitchens and bathrooms, installing new flooring throughout the property, and applying a fresh coat of white paint to the walls.

It’s essential to strike a balance and avoid overindulging in luxurious features like real hardwood floors or extravagant marble bathtubs.

How much will the refurbishment cost?

The cost of refurbishing the property will vary based on its location. For example, as mentioned earlier, refurbishing in Liverpool might cost around £15,000, while a similar refurbishment in London could set you back £30,000. Since most beginner investors tend to look for properties outside London, particularly in the North, the following figures should provide a good estimate of refurbishment costs.

These figures are based on a two-bedroom property in Liverpool that underwent refurbishment in 2023:

Skip hire and rip-out = £850
Exterior doors = £1,300
Plastering = £1,000
Interior doors = £900
Painting = £1,600
Flooring = £900
Kitchen and installation = £2,900
Bathroom and installation = £2,200
Other general expenses = £520
Contingency fund (20%) = £2,400

Total Refurbishment Costs = £14,600

How to add the most value to your property?

Enhancing the value of your BRR property often boils down to fundamental refurbishments, with key upgrades including the installation of a new kitchen and bathroom. While these are well-known methods, there are also lesser-discussed, cost-effective approaches like adding a deck to the back garden or fitting high-quality radiators and light fixtures. These less expensive enhancements can still boost your property’s value by a few percentage points.

Here are some of the most effective ways to add value:

Convert the garage or attic into a bedroom = +15%
Install new flooring and paint = +10%
Upgrade the kitchen = +8%
Revamp the bathroom = +8%
Add garden decking = +7%
Create a driveway = +5%
Freshen up the exterior with paint = +2%
Incorporate high-quality fittings = +2%

Get the Property Ready for Renting

Some investors prefer to wait for about six months after the property purchase before refinancing and renting it out. They argue that having a tenant in the property might affect its value due to potential wear and tear. While there’s some truth to this, I personally prefer to start generating rental income as soon as possible. This also allows me to ensure everything is in working order before the property valuation.

Renting out the property is a straightforward process, especially if you engage a letting agent – highly recommended due to the legal paperwork involved and the time-consuming tenant screening process. I’d rather pay a month’s rent to a letting agent than handle all the viewings, tenant screening, and legal paperwork myself.

The Final Step: Refinance the Property

Refinancing, also known as remortgaging, involves obtaining a new mortgage at a higher value to pay off the old one, often leaving you with extra cash. It’s important to note that the lender won’t determine the property’s value; you provide your estimation, and they assess the property. It’s better to be optimistic in your estimation, as they won’t offer more than your value, but they may down-value it if they believe your estimate is too high.

If you’re unhappy with the valuation, you’re not obligated to go with that lender. You can seek another valuation.

Tip – Facilitate the valuer’s job by providing a ‘valuation pack’ with local comparables, a list of property changes and dates, and before-and-after pictures.

How to buy a property using the BRRR method?

When you’re in the market to purchase a property in poor condition or need to secure a quick acquisition, traditional mortgages may not be the most suitable option. These properties are often classified as “uninhabitable,” and traditional mortgages may not meet the expedited timelines required for auction purchases. In such scenarios, investors frequently turn to bridging loans to raise the necessary funds in addition to their deposit.

Bridging finance serves as a short-term funding solution that allows you to acquire a property, carry out renovations, and subsequently either sell it or refinance it by replacing the bridging loan with a buy-to-let mortgage for long-term rental purposes.

It’s crucial to have a comprehensive understanding of how to finance the property purchase and a well-defined exit strategy for repaying the bridging finance, whether through a sale or a mortgage. Collaborating with a broker is essential to grasp the full spectrum of financial costs involved in this process.

Pros & Cons of BRR

Pros of Buy Refurbish Refinance (BRR)

Increased returns, as demonstrated in the example above.
Ability to recycle a significant portion of your invested capital for purchasing more rental properties after refinancing.
Possession of a high-quality property post-refinance, attracting better tenants and demanding higher rent.
Lower tenant turnover.
A combination of strong rental income and asset appreciation.

Cons of Buy Refurbish Refinance (BRR)

Higher costs compared to a standard buy-to-let property due to refurbishment and refinancing expenses.
Responsibility for utility and council tax payments during property void periods.
Renovation process can be highly stressful, but hiring a good project manager can mitigate the stress.
Risk of down-valuation, potentially impacting your Return on Capital Employed (ROCE).

Is buy refurbish refinance (BRR) a risky strategy?

Investments inherently come with risk, making it vital to perform extensive due diligence on the property you intend to work on. It’s essential to anticipate and prepare for potential surprises during the refurbishment. For beginners, a prudent approach involves setting aside a contingency fund of approximately 20%. This means inflating your initial estimated refurbishment costs by 20% to accommodate unforeseen circumstances. Additionally, we advise investing in an RICS property survey, which identifies major property issues. Following these steps is a sound way to mitigate risks associated with a BRR project.