The BRRR Strategy, explained

In his column, Joel White from Buy to Let Group preferred mortgage broker partner, Ramsay and White, breaks down the basic steps of a popular portfolio-building strategy and, importantly, how to finance it...

You can’t go too far wrong with straightforward buy-to-let investing. Buy, rent and hold. As the mere cat would say, ‘Simples’. Realising significant gains from this method though, as you wait for property values to rise significantly, can take a long time. However, add a dash of forced appreciation to the equation and you can shave years off your portfolio-building aspirations, achieving a higher ROI by recycling your cash out mor e effectively. Enter the BRRR method. Now, it might sound like a strategy involving buying properties in the arctic circle, but it stands for Buy, Refurbish, Refinance, Rent. The BRRR Method is a real estate investing technique that consists of purchasing a property, fixing it up and adding value, refinancing it and then renting it out. Older or poorly maintained properties with restoration potential are examples of properties that are perfect for this strategy. The reason many get excited about BRRR is that done well, it is a very effective strategy allowing you to develop your portfolio quickly often using little initial investment. Sounds great! Let’s break it down.

The steps are as follows:

Buy: The first step is to acquire a property. The criteria usually include properties with a lower value that can be improved through additional work, such as a refurbishment. The money required to get into a BRRR deal is largely based on the purchase, therefore 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 improve 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 and/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 – so you can borrow at the higher price and ideally recycle out the capital you put into the deal. This can then be used as a deposit to purchase the next property.

Rent: When the property is ready to rent out and you have refinanced onto a longer-term product such as a mortgage, 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.

FUNDING YOUR BRRR

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

The BRRR method is a popular technique for both developers and investors. It can be complicated and a fair amount of work, but it can be a great way to get started in property or grow your portfolio as it allows you to gain momentum quickly – it is even also known as momentum investing.

Additionally, there are other property methods that can be used in accordance with the BRRR strategy that enhance 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?

Speak to our award-winning property finance advisors today at ramsayandwhite.com.