What Is Buy Refurbish Refinance BRRR?
The Buy, Refurbish, Refinance, Rent (BRRR) strategy is a popular property investing strategy that involves pulling your money back out of a property deal.
Unlike standard “vanilla” buy to let investments which require a 25% deposit left in.
The BRRR strategy enables you to buy a property below market value, increase the value through refurbishment, refinance at the new market value, then rent it out to create monthly cashflow.
If everything goes well you can get all of your money out the deal allowing you to invest in a new property.
Not every deal you will pull all your money out in the first round of investing. But if you are diligent when finding deals you give yourself a better chance. Even if you only leave in 20% of the money you invest, thats 5 times better than a standard buy to let.
A lot of investors use bridging finance to fund their purchase, repaying the loan once the refurbishment is complete. Once you complete the refurbishment you will move onto a standard buy to let mortgage to pull your money out.
Does The BRRR Method Work In The UK?
YES – The BRRR strategy is great in the UK due to the strong residential property market. The lack of housing means prices tend to rise in the UK doubling every 10 years.
It important to have a good team to help you implement this strategy. That will range from solicitors, mortgage brokers and most importantly a good builder.
The Buy Refurbish Refinance Rent strategy is a great strategy for building long term wealth. You can even do this strategy from outside the UK if you build a strong team to support you.
Is BRRR Better Than Flipping?
A big advantage of BRRR investing over flipping is that you don’t have to sell the properties you acquire.
House flipping can be very profitable, however I find keeping the properties long term will make you much more money.
I have a flat in Dorking Surrey I purchased for £45,000 in 1999, today that property is worth over £250,000. If I sold in 1999 after doing up the property I could have made around £10,000 profit by flipping.
By holding the property I have created over £200,000, time is your biggest friend in property. I always recommend to buy and hold property.
Where To Find Suitable Deals
You can find deals in lots of places, the best deals will be off-market. Off-market means not with an estate agent.
Some examples of off-market include.
- Gumtree
- Facebook Marketplace
- Auctions
- Direct to vendor.
You can also find deals with estate agents, but these will be less common in the South of England.
Look for deals that you can add value to, that could be a full refurb or just a lick of paint. Normally the more more involved the greater the value that will be added to the property.
Can You Use A Bridging Loan To Purchase
Bridging loans are a common way to purchase property that you will be improving. They are much easier to get than Buy To Let mortgages as the cost of borrowing is much higher.
Expect interest rates of between 0.5% and 1% per month.
Bridging loans offer fast cash, its not uncommon to have the money you require in your bank within 7 days.
These are great when you need a speedy purchase such as an auction.
How Much Should You Budget For Refurbishment?
Not as much as you think, the goal is to improve the property to a decent buy to let standard. Where investors go wrong is spending too much on the refurbishment.
If you have a £2000 kitchen or a £10,000 they will improve the value by similar amounts. You are looking to add value not make it your own home.
Buy to let tenants want, new, fresh clean properties. They don’t expect it to have the most expensive kitchen or bathroom you can install.
Here is some rough costs of a recent refurb on a 2 bed terraced house up North:
- Kitchen £1200
- Bathroom £500
- Carpets £650
- Plastering £2000
- Decorating £1000
If you can do any of those tasks yourself that will save you a lot of money. Lets be honest we can all paint, its just if you want to do that or have the time.
Refinance
Once the property is looking its best, its time to refinance (remortgage). I start this process while I am doing the refurbishment as a remortgage is SLOW.
Get a broker to find you the best deals on the market and get them to do the remortgage.
When the surveyor comes round to let them know all the work you did to add value. Remember they wont have seen the property before you improved it.
I often give them a document with photos of before and after. This helps justify the increase in value and will help you not get down-valued.
Rent
I always use an Estate Agent to rent out my property. They have access to all the property portals you will need like Rightmove and Zoopla.
They also have access to tenants who might not be browsing online. A good agent will keep you compliant with all the latest rules and regulations.
Another key thing of using an agent is they deal with any issues or disputes on your behalf.
What Are The Pro’s Of BRRR?
A key advantage of using the Buy, Refurbish, Refinance, Rent strategy is the ability to use a pot of money again and again.
Its important to have careful deal selection, due diligence and wise financial management on your refurbishments.
By pulling out your investment from each deal, you can quickly expand your property portfolio without having to keep your initial investment locked in.
Many BRRR investors opt for bridging finance to execute this strategy. Using Bridging finance gives you an advantage during the purchase of a property. It allows you to buy quickly which can help you get a better price on the property.
Its important to keep in mind, for this strategy to work best, the property value needs to increase enough to leave 25% equity.
You will then be able to repay the bridging loan and any incurred fees and interest, and potentially pull out all your money to use on the next deal.
Buy, Refurbish, Refinance, Rent allows you to expand your property portfolio fast. Unlike the conventional buy to let approach which requires you to save multiple deposits.
Bridging loans will allow you to purchase properties that would not be eligible for a mortgage due to their condition. Property without a kitchen or bathroom are unable to get a mortgage, that is a big advantage as the property will be a lot cheaper to buy.
This is an excellent opportunity, as you can refurbish the kitchen and bathroom during your project. You can then put a mortgage on the property once all the work is complete.
What Are The Con’s Of BRRR?
Compared to a turnkey buy to let investments, BRRR deals require more effort and time. You will need to do detailed research, and due diligence to make sure you are getting a good investment.
Finding suitable properties can be challenging, as you need to look for properties below market value and in need of repair. The goal is to find properties you can increase the property value significantly.
Managing BRRR projects can be time consuming as you rely on a team of tradespeople to carry out the work to a satisfactory standard.
There is also a risk of unexpected property issues during refurbishment, so you must allow for contingencies during any building work.
Despite these challenges, Buy, Refurbish, Refinance, Rent is an excellent property investment strategy.
Done right it will help you expect your property portfolio quickly.
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