BRRRR is a strategy used by many professional property investors and stands for:
Buy Refurbish Rent Refinance Repeat
The process can be described below:
1. Poor quality or under-utilised properties are purchased (ideally below market value).
2. A refurbishment with the aim of adding value is undertaken. For example, by increasing the number of bedrooms which can be rented out.
3. Once the refurbishment works are finished, tenants are found who pay market rent.
4. Usually after a period of 6 months the investor approaches a mortgage lender to refinance the property against its improved (post refurbishment) value. If the investor has increased the property value they have therefore built equity in the property which is borrowed against.
5. The released equity is paid to the investor from the lender (who issues a mortgage against the property) which, hopefully, is enough to cover much of their initial outlay (purchase deposit, refurbishment and holding costs).
6. The investor takes these funds to use on their next project and now has a high-quality income producing property which pays them monthly cashflow.
If used correctly the BRRRR strategy allows investors to recycle their capital from one project to the next, avoiding the need to take out additional debt.
How does this work in practice?
An investor buys a property for £100,000 cash and spends £30,000 on a refurbishment. They've spent £130,000 and based their figures on the property being valued at £160,000 when the refurbishment is finished.
With an 80% Loan-To-Vale (LTV) refinance the investor would receive £128,000 from a lender. This means he would only have £2,000 of his original £130,000 capital remaining in the deal.
The investor has therefore generated a high-quality income producing rental property AND recycled the majority of their initial capital from the refinance which gives them the opportunity to move to the next project and repeat the process (without having to find any more money to do it!).
The money they receive in rental income would pay the mortgage costs.
And so, this is where BRRRR comes from:
Buy Refurbish Rent Refinance Repeat
For more information about BRRRR check out our short video below:
