The BRRR Property Strategy Explained

BRRR stands for Buy, Refurbish, Refinance, Rent. The BRRR method is a real estate investing technique that involves purchasing a property, fixing it up to add value, refinancing it and then renting it out for a high return on the initial investment.

Since the BRRR method is all about adding value, people typically buy or rehabilitate properties with high restoration potential. This includes older properties and those that have been poorly maintained.

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How Does the BRRR Method Work?

BRRR is a very effective property investment method that allows you to develop your portfolio quickly using little initial investment. The steps in the process are as follows:

• Buy: The first step is to acquire a property. People usually look for properties with a lower value that can be improved through additional work, such as a refurbishment. The money needed to get into a BRRR deal is largely based on the purchase. So you must be confident that your figures add up at the time of purchase. Many investors fund the initial purchase with personal cash, from releasing equity from their home or by using a bridging loan.
• Refurbish: During the refurbish stage, you increase the value of the property by adding features or upgrading systems. The objective of this stage is to perform only the essential improvements that will immediately increase the property’s capital appreciation or rental value.
• Refinance: When the work on the property is complete, it's time to refinance onto a longer-term product such as a buy-to-let mortgage. Refinancing after the work is done allows you to borrow at a rate based on the property's improved market value. That means you can borrow at the higher price and recycle the capital you put into the deal. You can then use this as a deposit to purchase another next property for BRRR upcycling.
• Rent: When the property is ready to rent out and you’ve refinanced onto a longer-term product, it’s time to find a tenant and rent out the property. The rental income of the property should cover any costs (mortgage, insurance, etc.) as well as provide you with additional monthly cash flow.

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‍Benefits of the BRRR Strategy

1. Low Initial Investment

BRRR investing lets you start a property business without needing a large amount of upfront cash. You only need enough cash for the deposit and, if necessary, any fees associated with the purchase. This makes it a good option if you’re looking for a low-risk endeavour.

2. High Returns

Because the out-of-pocket cash required for this technique to succeed is so small, the return-on-investment (ROI) can be enormous. Even better, as long as you own the property, the ROI could be infinite. High demand for rental property can also make these properties easy to rent out for a big profit.‍

3. Less Upkeep

As the property has been freshly refurbished, it shouldn’t need much maintenance in the following years. This is one of the primary reasons why investors pursue BRRR.

In general, a BRRR property is a lot easier to maintain than an old property in constant need of repair. The nature of the process essentially improves the property's functions from the get-go, thereby making it less of a repair concern in the long term.

4. Potential to Recoup Initial Investment

After refinancing the property, you’re typically able to get your original investment back. But even if the refinancing doesn't provide the full amount, the property's value could rise significantly. This potential for a significant increase in property value makes the BRRR method an appealing way to build wealth over time.

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Disadvantages of the BRRR Strategy

1. Renovation Issues

The process of renovating the property can take as little as a few weeks. But it could be as long as six months. Or in some cases much, much longer.

Time is money, and you run the risk of losing money if the renovation phase goes over schedule and budget. So it’s vital that you agree on the costs and time frame with your contractor at the very start. This is particularly important if labour and materials are affected by supply and demand constraints, such as those during the pandemic.

Costly or time-consuming issues can also arise during the renovation process. This could be the discovery of something that needs to be repaired or replaced, or potential damage that occurs during the refurbishment process. Even if inspected prior to purchase, it’s very common for unexpected costs to occur during the renovation period.

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2. Down Valuation

This is without a doubt the most significant risk when adopting the BRRR approach.

You're putting all this money into buying a property with the aim of getting the money back out of the property once the work is done and you refinance. But what if the valuation doesn't come back the amount you expected it to?

While this isn’t common if you are adding significant value to a property, an experienced finance broker such as Ramsay & White will be able to advise you on the best way to avoid this situation.

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3. Void Periods

Once the property is ready to rent, it’s important for a tenant to move in as soon as possible. If the property is empty, you’re missing out on income and the costs will fall on you.

Most letting agencies should be able to rent a property out within two weeks. You can also manage the property yourself if you have the time and knowledge to do so.

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‍How to Finance a BRRR Project

Bridging loans are a popular BRRR financing choice for a variety of reasons, such as supporting commercial and residential property transactions, auction purchases, and renovation and development projects. This approach is also appealing for new investors, as it means they can access deals much more quickly than it would take to save up the cash for a deposit. Bridging finance is fast and flexible, and can be secured in a matter of days.

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Set Yourself Up for BRRR Success with Ramsay & White

The BRRR method is a popular technique for both developers and investors. It can be complicated and take some work. But it’s also a great way to get started in property or grow your portfolio, as it allows you to gain momentum quickly

There are also other property methods that you can use in accordance with the BRRR strategy to enhances its overall effectiveness!

Not sure which property strategy you should undertake? Or maybe you’ve got a question about the best finance to get started in property?

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Speak to our award-winning property finance advisors today!

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