Buy Refurbish Refinance Rent (BRRR)

BRRR stands for Buy Refurbish Refinance Rent and is a strategy property investors use to build a property portfolio.

BRRR, or buy, refurbish, refinance, rent, is a popular property investment strategy that has become increasingly popular in recent years and expecting to continue in 2024. By leveraging the power of finance to maximize return on investment, BRRR allows investors to purchase distressed / uninhabitable properties with the idea to quickly turn them into profitable rental properties.

When using the BRRR strategy, the first step is to buy a property at a good discount. This could be anything from an empty home that is in a poor condition to a repossessed property where a quick sale is needed. The investor puts down a deposit, raises finance to complete the purchase – cash purchase or bridging finance is commonly used. After completing renovations, the investor then looks to refinance (also known as remortgage) the loan as there is now more equity within the property and capital raise to pull back out some or all of the money they have invested.

Once the loan has been refinanced, the investor can now start collecting rent on the property. This allows them to generate a steady stream of income each month while still maintaining ownership of the asset. As long as the tenants continue to pay their rent, BRRR investors can continue collecting passive income through rental payments each month while also benefiting from possible appreciation in property value over time if they choose not to sell.

How to buy a property using the BRRR method in 2024?

If you are looking to buy a property that is of poor condition a traditional mortgage would not be suitable as the property is probably classed as ‘uninhabitable’ or maybe if you need to complete quickly where you are buying the property through an auction, again a traditional mortgage will not complete in time, therefore investors commonly use a bridging loan to help raise the money needed along with their deposit.

Bridging finance is a short term funding solution where you can buy a property, refurbish and then either sell or refinance (replace the bridging loan with a buy to let mortgage) and rent out as a long term investment.

It is important that you fully understand how to finance the purchase of the property and have a clear exit strategy to pay off the bridging finance – that maybe to sell or take out a mortgage. Working with a broker is key so you understand all the finance costs involved.

What deposit do I need using the Brrr strategy?

If you are not a cash buyer and therefore need to borrow money to complete on the purchase as mentioned above, bridging finance is short term finance solution. You will typically need to put down a 30 to 35% deposit and you will need to have the money to pay for the renovations to the property. In some case’s the bridging finance lender maybe able to lend you up to 100% of the money towards the refurbishment costs.

Here is an example of how the figures might work:

Purchase Price £320,000.

Deposit £98,000.

Bridging Loan for £222,000 (69% of the purchase price).

Refurb Costs £30,000 (own funds).

Cost of Finance all in estimated at £247,500 over a 9 month term.

Final Value on completion £490,000.

Then Remortgage to a Buy to let mortgage borrowing £367,500 (75% of new value) which includes capital raising to get back all of the £98,000 deposit plus £22,000 of refurb costs – so roughly this property has cost them £8,000).

Now has a long term rental investment property.

Key – Find a property at the right price, with great potential, in a great location with a good rental income.

What type of mortgages do people take out using a Buy refurbish refinance rent strategy?

Most lenders want you to have owned the property for 3 to 6 months before allowing you to remortgage. The type of mortgage available will depend upon the property, for example will it be rented out using a standard AST or has the property been developed into a HMO (house of multiple occupation) and therefore you would need a HMO mortgage or do you plan to let it out as a holiday let and market on sites such as Airbnb?

Depending upon the type of property you will be letting out will determine which type of buy to let mortgage you need to take out.

Another consideration is what type of valuation do you need? For example, most lenders use the open market valuation (bricks and mortar) on standard buy to let mortgages, however if, for example, you have converted the property to a 8 bed HMO property, you may want to have the property valued using a commercial valuation as this will also take into account the rental income and therefore this could be a higher valuation than the ‘bricks and mortar’ open market valuation, allowing you to capital raise more.

Can First Time Buyers use the BRRR strategy?

Yes – however it is important that you have people working with you that you trust and have the experience that you lack. For example do you know of a good builder?. Other questions to ask yourself – how will you oversea the project?, which trades persons will you use?, have you done enough research on the property and are confident the refurbishment costs are accurate? Spoken to estate agents to confirm the rental income / demand for property in the area.

Having done detailed research is essential to help you have a successful project.

How much does a bridging loan cost?

This will depend upon several factors such as:

• Your Experience – Have you previously done similar projects or are you involved in the industry (i.e. builder by trade)
• The Property – The current state of the property and the refurbishment needed.
• The Term – The time frame to complete the renovations.
• The Exit Route (how you plan to redeem the bridging loan)
• The Deposit – How much will you be putting down on the project.

As a broker, we would need all the information above and then we could reach out to bridging loan lenders to give you a quotation. With property development all projects are bespoke and finding the right funding solution that can support your project from the start and all the way through the refurbishment is key and this is where the brokers experience is important.

For BRRR – Is having a power team important?

To buy refurbish refinance rent properties you need a power team in place and by this we mean:

• Your Broker & Lender – Do you have a broker that will find you the right finance deal with the right lender. There are many lenders in the market, however they all have their own niche criteria and offering. Working closely with a broker to secure the right funding is so important.
• Your Architect – Do you have an architect who can work quickly, be creative with solutions and help you achieve you vision for the property?
• Your Tradesman – Do you have a team of tradesman that you trust to complete the project on time and within budget?
• Your Solicitor – Do you have a good relationship with a solicitor who can act quickly, be pro-active and get the property deals completed within the tight deadlines you may sometimes be faced with?

Having a ‘power team’ in place will help you achieve your long term dream of building a managing a property portfolio.

What are the advantages and disadvantages of the BRRR Method?

The Advantages of the BRRR Method?

When done successfully, you can build a property portfolio and then be in a position to receive rental income from your portfolio. Additionally, you could benefit from any future property value increases.

The Disadvantages of the BRRR Method?

Finding the right property, at the right price, in the right location is key and takes time. You will need to have money to put down a deposit, getting the refurbishment completed will take time and money plus what happens if the project overruns or goes over budget?. What if when you go to refinance with a remortgage and the property is valued less than expected? And you therefore cannot pull all of your money back out of the property. Additionally, there is a lot to do – to get the finance in place to purchase by liaising with brokers, lenders, solicitors and then you have the refurb itself working with tradesman, maybe doing some of the work yourself and then you have the refinance to again work with brokers, lenders and solicitors – It can all take time.

Do you have a project in mind and you would like to know your finance options?

As brokers, The Money Hub, has a team of experienced advisors who can help you find the right finance solution for your project. You can contact us by calling the office or complete the enquiry form on the page where you will then be able to arrange a call time.