Explore the pros and cons of the Buy Refurbish Refinance strategy in property investment. Make informed real estate decisions. The Buy Refurbish Refinance Rent (BRRR) Strategy is one of the best property investing strategies to grow a large portfolio. In this post we deep dive into the Pros and Cons of the strategy.
Its good to know the ins and outs of this strategy before you jump in.
What is Buy, Refurbish, Refinance (BRRR)?
Buy Refurbish Refinance Rent is a strategy used by investors to extract cash from their deals. The BRRR strategy enables you to buy a property below market value, add value to the property and pull out when you refinance.
A normal buy to let you will put in a 25% deposit and it just sits there. This strategy gives you the opportunity to get the deposit back out so you reuse it on a future project.
You need to find properties that can have value added to them for the strategy to work. That can be through refurbishment or adding value such as extra bedrooms or an extension.
The goal is to create enough value in the property that it has at least 25% equity in it. You can then put a buy to let mortgage on the property and pull out all of your money.
This allows you to recycle your money and buy your next investment. If you manage the project correctly its not uncommon to use one deposit and reuse it to build a health property portfolio.
Pros And Cons Of BRRR:
Pros Of Buy Refurbish Refinance Rent (BRRR)
Here are the benefits of the BRR strategy:
- Can Get The Best Deals With The Bridging Loan
- Use The Same Amount Of Money To Grow More Money
To get good deals you need to be able to buy quickly, that could be through auctions or direct with vendors. You can do that in one of two ways, purchase with cash or purchase with a bridging loan.
A bridging loan is a short term loan that can allow you to purchase a property as quickly as 7 days. That gives you an advantage and helps you get a discount on your purchase.
The biggest benefits of the Buy Refurbish Refinance Rent strategy is the ability to build a big portfolio. If you are careful with your property purchases and do your due diligence you can often pull all your deposit out of each deal.
Its important to keep an eye on refurbishment costs, you don’t need to spend £10,000 on a kitchen when a £2000 one will do.
In order for you to pull out all your money your refurbishment will need to create at least 25% equity in the property. That will allow you to pay back your bridging loan, interest and any other costs.
In comparison a straightforward buy to let, you would invest your 25% deposit then not be able to buy anymore property. The BRRR strategy is a great way to expand your portfolio quickly and reduce your risk.
One last thing you can do is buy un-mortgageable properties, for example places with no working kitchen or bathroom. This allows you to buy at steep discounts, and once you add a kitchen or bathroom you can borrow money using a standard buy to let mortgage.
Cons Of Buy Refurbish Refinance Rent (BRRR)
Here are a few drawbacks of the BRR strategy:
- Hard Work compared to other types of property investment
- Needs more planning, time, and management
BRRR deals involve more effort, time, research than a traditional buy to let investment. Finding deals can take more time and be challenging because you need to find properties that need work. Thats important because you need to be able to add value.
The deals will take up much more time. Because you will be running a project, you will need tradespeople to complete the work to a high standard. Additionally you need to plan for contingencies as often with building work things can go wrong.
If you hire the wrong tradesperson they can delay or even cause problems with your project. Its vital you find a good power team to complete your project on time and on budget.
Check out my ultimate guide to buy, refurbish, refinance, rent here.
CONCLUSION:
Buy Refurbish Refinance Rent is an amazing strategy. When you with due diligence it will help you expand your property portfolio much quicker. Once you have your property refurbished a great way to increase your cashflow is to run it as a Serviced Accommodation.
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