BUY, REFURBISH, RENT, REFINANCE, REPEAT: BRRR METHOD, STRATEGY & OVERVIEW
Jordane Thompson
January 14th, 2022
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BRRR is an acronym for a commonly used property investment method or strategy. In this article, we explore everything from what it actually is, the basics, how you start and what the pro’s & con’s might be.
So, if you’re interested in learning more about this method, and whether it might be right for you, keep reading!
If you’re interested in property investing & currently researching different strategies to determine how you should approach it, you might have come across the acronym’s BRR or BRRR.
But what does BRRR stand for?
Both variations are used, but it essentially stands for Buy, Refurbish, Refinance, Rent. It’s an investment strategy where you specifically target purchasing distressed properties, often found off-market or at auctions with the idea of flipping them into rental properties and refinancing to go again.
The easiest way to understand BRRR is by breaking down the steps.
Your aim here is to purchase a property at a cut price, which is in need of renovation. The key is to understand and determine the amount of renovation needed to get to your final goal, and what the cost of that is going to be, and calculating all the costs including the time taken will allow you to find out if you’re getting a good deal.
The next step is refurbishment, the key to this is to not get sucked in and over renovate the property. Look at what tenants the property is potentially going to attract and work back from that, make it liveable and pleasant, but don’t go over the top with high-end finishes if you don’t need to – you want to go fix and repair the aspects of the house that are going to increase your monthly rent.
Only go high end if the amount of rent you’re going to get justifies doing so.
Now your property is up to scratch it’s time to look into renting it out and building up equity. You should work out a rental fee that covers the cost of the mortgage and provides you with a small profit month on month. You also ideally want to find longer-term tenants that will stay there for years, so be mindful when reviewing your rental applications and check credit references.
The other thing you have to consider is whether you want to manage the property – or if you’re solely interested in a passive income which would involve hiring a property management company but this will of course cut into your profits.
Once you’ve built up a decent amount of equity in the property it’s time to pull some cash out. You’ll need to be aware of the mandatory period that you likely have before the lender will allow you to refinance.
The reason you need to do this after refurbishing the property is they will appraise its value, which will hopefully be significantly higher than when you bought it.
BRRRR…. Take a breath, RRRRRR.
We jest, but seriously – there’s an additional step at the end, another R, which is to repeat the process. Once you’ve refinanced, take the money you’ve got to then purchase another property in need of refurbishment and rinse and repeat until your profit continues to grow.
The most important thing to consider is the ability to keep repeating the process. You want to really be buying a low-value property to start with, and add as much value as possible allowing you to then refinance it as quickly as possible, that way you can begin to scale up the number of properties you own far quicker than if you went for something at a higher value to start with.
How do you go about getting started? Well, there are a few main aspects you need to consider when first starting out with the BRRR strategy.
The buying aspect is the hardest part – you want to pick up a property that you can add a lot of value to, that’s cheap & you can hopefully turn around pretty quickly. You can look through Rightmove, but these types of properties in need of renovations are usually found in auctions or through property sourcing companies like ourselves. Before you purchase any property, you also want to work out what potential yield you can get as a return, by looking at similar rentals in the area and judging how much PCM return you will be looking at when it’s refurbished.
Then it’s the refurbishment part, before jumping into buying a property you want to ensure you have the necessary skills or contacts lined up to get the property up to standard, and importantly an overall idea of how much it will cost.
Then the renting out, you just need to know whether you want to be hands-on, or not. If you want to be hands-on you will save yourself money then there isn’t too much to consider here, however, if you want to be hands off, you should do some research of available property management companies and how much they charge, so you can work that into your calculations.
There are obviously risks to investing, in any strategy you choose, and this method is no exception. That being said, this strategy can be a very good way of making money, but you need to be armed with the right knowledge and expertise, as well as trusted contacts – as you likely won’t be able to do everything yourself.
As we keep mentioning, the most integral part of whether this will work for you is finding the right property to start, understanding how much it will cost and getting yourself on the right foot. If you get this wrong, you’re fighting a losing battle from the beginning.
As with any method, there are pro’s and con’s which you have to be aware of before investing. Overall, we genuinely think that the positives hugely outweigh the negatives on this one, but it’s worth taking a look at both sides.
Pros of BRRR
- You can invest in properties with a lower amount of cash, since you’re going for cheaper properties in need of renovation, the outgoing will be much smaller.
- You can scale your property portfolio much quicker as you can refinance after building up some equity – and it can be quite quick too due to being able to significantly increase the property’s value.
- It can be a completely passive source of income.
- You can use a bridging loan to access the best deals, quickly!
- Ultimately, it offers a good return on investment – you should hopefully make money from the refurb and the consistent cash flow.
Cons of BRRR
- If you use a short term loan and don’t pay it off in time, then it could become costly.
- Refurbishments often don’t go to plan, and if anything unexpected crops up, the extra time taken might cost you money.
- It’s a long time to wait – you have to wait for the refurbishment and for the equity to build up before you can release funds.
- It’s hard work! You’ll spend a lot of time actually finding the right opportunity, then you will have to arrange all the potential tradesmen, it’s not as easy as a standard buy to let.
You’ll be looking into getting a BTL mortgage on the property, or taking advantage of a bridging loan so you’ll need a certain amount to put down on the property in the first place, likely around the 20% mark.
On top of that, you’ll need to price up the refurbishment costs and have the funds to do that, or include that in your mortgage application. Then after that, it’s just the time you need to wait to accrue enough equity to refinance and pull the money out.
So, to answer the question is really tricky as it completely depends upon the cost of the property and the amount of refurbishment that needs doing.
So who is the BRRR method actually useful for? Let’s take a look.
Who should use BRR? Well, if you don’t have a significant sum of money, but want to get started on building a property portfolio and are willing to put the time and effort into finding the properties and renovating them, then this is for you. The key aspect of BRRR is that it does take time, particularly in the renovation stage and when you’re having to build up equity.
When shouldn’t you use it? Well, fairly obvious, but if you already have the money to start buying several properties that are ready-made for renting out.
BRRR is a fantastic method for growing a portfolio but it’s not the fastest method, you need to have patience and be willing to put in the hard graft in order to really take full advantage of this investment method.
It’s a strategy that is popular with many investors and for a good reason – if you don’t have a significant amount of money to start your property portfolio, but you can dedicate time and have the patience, this is for you!
Start your property portfolio today!
BRRR is an acronym for a commonly used property investment method or strategy. In this article, we explore everything from what it actually is, the basics, how you start and what the pro’s & con’s might be.
So, if you’re interested in learning more about this method, and whether it might be right for you, keep reading!
If you’re interested in property investing & currently researching different strategies to determine how you should approach it, you might have come across the acronym’s BRR or BRRR.
But what does BRRR stand for?
Both variations are used, but it essentially stands for Buy, Refurbish, Refinance, Rent. It’s an investment strategy where you specifically target purchasing distressed properties, often found off-market or at auctions with the idea of flipping them into rental properties and refinancing to go again.
The easiest way to understand BRRR is by breaking down the steps.
Your aim here is to purchase a property at a cut price, which is in need of renovation. The key is to understand and determine the amount of renovation needed to get to your final goal, and what the cost of that is going to be, and calculating all the costs including the time taken will allow you to find out if you’re getting a good deal.
The next step is refurbishment, the key to this is to not get sucked in and over renovate the property. Look at what tenants the property is potentially going to attract and work back from that, make it liveable and pleasant, but don’t go over the top with high-end finishes if you don’t need to – you want to go fix and repair the aspects of the house that are going to increase your monthly rent.
Only go high end if the amount of rent you’re going to get justifies doing so.
Now your property is up to scratch it’s time to look into renting it out and building up equity. You should work out a rental fee that covers the cost of the mortgage and provides you with a small profit month on month. You also ideally want to find longer-term tenants that will stay there for years, so be mindful when reviewing your rental applications and check credit references.
The other thing you have to consider is whether you want to manage the property – or if you’re solely interested in a passive income which would involve hiring a property management company but this will of course cut into your profits.
Once you’ve built up a decent amount of equity in the property it’s time to pull some cash out. You’ll need to be aware of the mandatory period that you likely have before the lender will allow you to refinance.
The reason you need to do this after refurbishing the property is they will appraise its value, which will hopefully be significantly higher than when you bought it.
BRRRR…. Take a breath, RRRRRR.
We jest, but seriously – there’s an additional step at the end, another R, which is to repeat the process. Once you’ve refinanced, take the money you’ve got to then purchase another property in need of refurbishment and rinse and repeat until your profit continues to grow.
The most important thing to consider is the ability to keep repeating the process. You want to really be buying a low-value property to start with, and add as much value as possible allowing you to then refinance it as quickly as possible, that way you can begin to scale up the number of properties you own far quicker than if you went for something at a higher value to start with.
How do you go about getting started? Well, there are a few main aspects you need to consider when first starting out with the BRRR strategy.
The buying aspect is the hardest part – you want to pick up a property that you can add a lot of value to, that’s cheap & you can hopefully turn around pretty quickly. You can look through Rightmove, but these types of properties in need of renovations are usually found in auctions or through property sourcing companies like ourselves. Before you purchase any property, you also want to work out what potential yield you can get as a return, by looking at similar rentals in the area and judging how much PCM return you will be looking at when it’s refurbished.
Then it’s the refurbishment part, before jumping into buying a property you want to ensure you have the necessary skills or contacts lined up to get the property up to standard, and importantly an overall idea of how much it will cost.
Then the renting out, you just need to know whether you want to be hands-on, or not. If you want to be hands-on you will save yourself money then there isn’t too much to consider here, however, if you want to be hands off, you should do some research of available property management companies and how much they charge, so you can work that into your calculations.
There are obviously risks to investing, in any strategy you choose, and this method is no exception. That being said, this strategy can be a very good way of making money, but you need to be armed with the right knowledge and expertise, as well as trusted contacts – as you likely won’t be able to do everything yourself.
As we keep mentioning, the most integral part of whether this will work for you is finding the right property to start, understanding how much it will cost and getting yourself on the right foot. If you get this wrong, you’re fighting a losing battle from the beginning.
As with any method, there are pro’s and con’s which you have to be aware of before investing. Overall, we genuinely think that the positives hugely outweigh the negatives on this one, but it’s worth taking a look at both sides.
Pros of BRRR
- You can invest in properties with a lower amount of cash, since you’re going for cheaper properties in need of renovation, the outgoing will be much smaller.
- You can scale your property portfolio much quicker as you can refinance after building up some equity – and it can be quite quick too due to being able to significantly increase the property’s value.
- It can be a completely passive source of income.
- You can use a bridging loan to access the best deals, quickly!
- Ultimately, it offers a good return on investment – you should hopefully make money from the refurb and the consistent cash flow.
Cons of BRRR
- If you use a short term loan and don’t pay it off in time, then it could become costly.
- Refurbishments often don’t go to plan, and if anything unexpected crops up, the extra time taken might cost you money.
- It’s a long time to wait – you have to wait for the refurbishment and for the equity to build up before you can release funds.
- It’s hard work! You’ll spend a lot of time actually finding the right opportunity, then you will have to arrange all the potential tradesmen, it’s not as easy as a standard buy to let.
You’ll be looking into getting a BTL mortgage on the property, or taking advantage of a bridging loan so you’ll need a certain amount to put down on the property in the first place, likely around the 20% mark.
On top of that, you’ll need to price up the refurbishment costs and have the funds to do that, or include that in your mortgage application. Then after that, it’s just the time you need to wait to accrue enough equity to refinance and pull the money out.
So, to answer the question is really tricky as it completely depends upon the cost of the property and the amount of refurbishment that needs doing.
So who is the BRRR method actually useful for? Let’s take a look.
Who should use BRR? Well, if you don’t have a significant sum of money, but want to get started on building a property portfolio and are willing to put the time and effort into finding the properties and renovating them, then this is for you. The key aspect of BRRR is that it does take time, particularly in the renovation stage and when you’re having to build up equity.
When shouldn’t you use it? Well, fairly obvious, but if you already have the money to start buying several properties that are ready-made for renting out.
BRRR is a fantastic method for growing a portfolio but it’s not the fastest method, you need to have patience and be willing to put in the hard graft in order to really take full advantage of this investment method.
It’s a strategy that is popular with many investors and for a good reason – if you don’t have a significant amount of money to start your property portfolio, but you can dedicate time and have the patience, this is for you!
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