What is BRR?
BRR is Buy, Refurbish, Refinance, or as some people call it BRRR – Buy, Refurbish, Rent and Refinance or even BRRRR – Buy, Refurbish, Rent, Refinance, Repeat!
Using the BRR strategy is a key skill that every property investor needs to master.
The principle is really simple.
- Buy a property, usually (but not necessarily) at a discount.
- Carry out a Refurbishment on the property to add value to it.
- Rent the property to a tenant
- Refinance the property to release as much money as possible
- Repeat the process with the money released to build your portfolio.
Using really round numbers to show how it works.
You buy a property for £110,000 including all costs (stamp duty, legal fees etc)
You spend £15,000 on a refurbishment, and rent the property to a tenant
The new value is £167,000 and you’ve created £42,000 of equity in the property
[£167,000 – £125,000 (refurbishment of £15,000 + purchase costs of £110,000) = £42,000]
You take out a 75% loan-to-value mortgage on the property releasing £125,250
[£167,000 x 0.75 = £125,250]
So all of your money plus £250 cash back is returned to you and you can repeat the process
There’s a phrase in property, “You make your money when you buy” and we should always aim to buy property at a discount, but in times when property values are rising and it’s harder to get discounts, BRR works when you can spot ways to add value to the property that other investors have missed, such as changing the layout of the property to add an extra bedroom for example moving the kitchen in a one-bedroom flat to one end of the living area and turning the kitchen into a second bedroom.
A standard refurbishment for me is
- New kitchen
- New bathroom
- Redecorate throughout
- New floor coverings
Try to avoid anything that can’t be quantified, this means steering clear of anything structural (unless you are very experienced and you can buy the property at a significant discount). If a property needs underpinning say, then all your structural engineer and builder can give you is an estimate for the work. This means it’s impossible to accurately predict your spend and know how much of your funds you will be able to recycle.
While the property is being refurbished your letting agent will be advertising the property to let, so you should have a tenant ready to move in almost immediately, everyone loves a newly refurbished home!
Many standard Buy to Let lenders will want you to wait six months after purchase before refinancing, but not all lenders enforce this. Use a great mortgage broker who is whole of market who can introduce you to lenders who will allow you to refinance sooner. The interest rates are sometimes a bit higher, but the more quickly you can recycle your funds, the faster your portfolio can grow.
The cash comes back to your account and you are ready to go again, that’s the magic of BRR!
Anne is one of the UK’s leading property trainers in BRR with a Multi-Million Pound property portfolio. For more information about how Anne created this she recently recorded a video to go into more detail: