What is the BRRR Property Investing Strategy?

BRRR is a popular property investing strategy, which stands for Buy, Refurbish, Refinance, Rent. This investing strategy brings high profits and allows investors to scale their property portfolio and benefit from passive rental income afterwards. But how does BRRR work exactly?

Read on as we explain more about the BRRR model, how it works and the different pros and cons to consider.

How the BRRR Investment Method Works 

The BRRR property strategy consists of four key steps: Buy, Refurbish, Refinance, and Rent (and Repeat!).

1. Buy

The first step is finding and purchasing the right property. For BRRR to work, the property will normally need to be in need of repair or modernising. Investors often target tired and outdated properties, to which they can add value and increase the end price of the property.

To maximise ROI, look for properties you can purchase at a discount. This is the key to a successful investment purchase.

Before you even make an offer on a property, you need to make sure that your numbers stack well. Considering all costs, fees and refurb work needed, work your way backwards and see if you will make profit buying at a certain purchase price.

For BRRR, the property is purchased with cash, private finance or bridging loan. 

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2. Refurbish 

There are two key points to the refurbish stage of this strategy: first is your power team and second is adding value to the property. 

Your power team are the people who will carry out the work on your project: tradesmen, project managers, quality control, etc. 

You need to be able to trust them and to be sure that they will carry out the work to a high standard. 

Second, and equally as important is adding value to your property. Remember the aim of the BRRR property strategy is to increase the end value of the property.

Here are some examples of how you can do this:

1. Add an extra room or an extension 

2. Add an ensuite bathroom in one (or more) of the rooms 

3. Ensure that the property is renovated and finished to a high standard 

4. Last but not least is curb appeal - your property should look good both on the inside and outside. Ensure that the garden is well maintained and the gutters and roofing are in good condition.

These are some of the ways you can add value to your property and make it more appealing to both tenants and buyers. The goal here is to add as much value to the property while spending as little as possible. 

Important: the renovation decisions should maximise your ROI. Many first-time investors often make the mistake of refurbishing based on personal tastes and emotions rather than what is best for the deal. While extra touches and fancy interiors may be appealing, they do not always correlate with a higher return on investment.  

3. Refinance

Once the work on the property is complete, it's time to refinance it with a buy-to-let mortgage.

The property will get re-evaluated based on all the work you have done to improve it. You can then borrow 75% (based on standard BTL mortgages) of the new value of the property and use this money to invest in your next project.

Important: Most banks require ownership of the property for at least six months before refinancing. Work with a mortgage broker to present your deal to multiple lenders and secure the best terms.

Here is what a BRR deal looks like in numbers:

4. Rent

The final step in the BRRR strategy is to rent out the property. You now have borrowed on the new value of the property and you need to rent it out so you can cover the mortgage.

Ideally, you would have checked the numbers in advance and the rental of your property will not only cover the mortgage and any other costs associated with the property (insurance, factor fees, management) but also bring you profit every month! 

A typical BRRR property can bring in £200 to £300 in monthly cash flow.

Pros and Cons of the BRRR Property Investment Strategy

The Advantages

1. High Returns on Investment: Buying at a discount and refurbishing increases the property's value beyond the investment amount.

2. Less Maintenance: A freshly refurbished property requires minimal maintenance compared to an older, turnkey property.

3. Potential for "All Money Out" Deals: With strategic refurbishments, investors can often recoup their initial investment upon refinancing, sometimes even making a profit. Here is an example of what an all money out deal looks like:
   

4. Passive Income: Renting out the property generates a steady stream of passive income. 5. Fast Portfolio Scaling: The BRRR method allows rapid portfolio expansion with minimal initial funds.

6. Capital Appreciation: As property values rise, equity and cash quickly build up.

The Disadvantages

1. Anything can go wrong with renovations The renovation of a property can take as little as a few weeks but it can also take years. 

   When you buy a property in poor condition, you may not necessarily be aware of all the issues with the property and they can often take longer to fix than anticipated.

   In addition, there is always the risk of underestimating the budget needed to renovate the property and end up spending a lot more money than planned. 
   

   This can not only affect your budget, but also your time scales. And with the BRRR strategy, time is money so you want to complete a refurb as quickly as possible so you can get it tenanted and bring you cashflow. 

   Make sure to speak with experts in the field who will help you get accurate time frames and cost estimates for your project, so you can make a better projection and reduce risk.

2. High Initial Investment BRRRs work best if purchased with cash. This allows you to negotiate a better purchase price and also leverage on the speed of purchase,

   
   
   
   

   Sometimes the properties are in such a bad condition that they are deemed uninhabitable (these are our favourite) or unsuitable for a mortgage security.
   

   Don’t get me wrong, you can still purchase a BRRR property with a mortgage, however you may struggle to refinance it due to high exit fees.

   
   

   However, you also need to have the funds available to cover the cost of the refurbishment.
   

3. Down Valuation

   The final value of the property and the one that you can borrow on, depends entirely on the bank valuation you will get and you have no influence over it. 

   
   
   
   

   So, there is a significant risk that the property will not get as high as valuation as you initially anticipated and hoped for.
   

   
   

How to Get Started with BRRR

The first step in the BRRR method is finding a property at the right price, which can be a challenge in today's competitive market. That’s where we can help.

At MG Property Group, we specialise in helping investors navigate the BRRR property strategy with ease and confidence. Our team of experts can assist you in finding the right properties, managing refurbishments, securing financing, and reducing risks throughout the process.

Is BRRR worth it?

The BRRR investment strategy is an excellent way to rapidly scale your property portfolio  fast and without a massive budget as you can recycle the funds from one property and invest them into the next. 

However, like all investments, it comes with challenges, including finding the right property, managing refurbishments, refinancing, and securing tenants.

Leveraging the right funding and securing the best rates is crucial. If you're new to investing, taking the first step can be daunting. To learn more about using the BRRR method to start or scale your portfolio, speak with our expert team today.