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BRRR Strategy Explained
The property investment strategy to Buy Refurbish Refinance Rent (BRRR) for loans and mortgages, is probably the number 1 property approach undertaken by investors to create a profitable property business and recycle funds to create deposits for future deals.
- Refurbish Value is added to the property by modernising, obtaining & implementing planning or permitted development rights. The works can be a light refurbishment, which is a quick project, or a heavy refurbishment which involves extensions/conversions. The key requirement is to add value to the property.
- Refinance The short-term bridging loan is refinanced onto a long-term buy-to-let mortgage at a lower interest rate for typically 25 years. The buy-to-let mortgage is based on the increased value after works are completed and at a typical 75% loan-to-value. Therefore, sufficient funds are available to repay the bridging loan, the interest, the acquisition costs & the costs of the works; generating a deposit for the next project.
- Rent The property is rented out to produce cash flow to the buy-to-let mortgage and a profit for the investor.
- Repeat Refinancing is used to do it all over again, in order to grow the property portfolio and generate a larger monthly cash flow.
Also referred to as the Buy Refurbish Rent (BRR) and the Buy Refurbish Refinance Rent Repeat (BRRRR) strategy. All three terms and abbreviations refer to the same strategy. The financing is made up of two stages:
Bridging / Refurbishment / Conversion loan – To acquire and carry out the works
Mortgages – Refinance onto a long-term BTL mortgage to repay the loan and release funds back to the customer so as little capital is left in the property to maximise Return on Investment (ROI)
Key Points: BRRR Loans & Mortgages
• Interest bridging rates, buy to let mortgage rates & fees, Speak to our expert team for FREE
• Bridging loans from £1000 to £10 million; subject to affordability, credit & underwrting criteria
• Mortgages from £10000 to £10 million
• LTV up to 85% for light refurbishments (100% with cross charges)
• Loan to value up to 75% (+100% works) for Heavy refurbishments and Property Conversions
• Bridging loan Terms from 1 to 24 months / Mortgage Terms from 1 to 40 years
• No previous experience is required but preferred on large, more complex projects
• Payments: interest only / capital repayment / part capital / interest compounded / rolled or retained (no monthly payments)
• Purchase / Refinancing / Capital Raising (any purpose)
• No minimum income / All income types
• No max of number of rooms / units
• All credit histories: High Net Worth to Credit Repair
• All applicant types: Individuals / Corporate (Ltd Co’s) / SSAS etc
• Freehold / Leasehold (no minimum term)
• EPC-enhanced products available
Advantages of the BRRR strategy
- If done correctly, the BRRR strategy has proven time and time again to work for investors.
- We have worked on projects where clients have refinanced and managed to pull out their entire investment effectively, achieving 100% financing based on the purchase price and cost of work.
- This resulted in an infinite return on investment for the investor.
Disadvantages of the BRRR Strategy
- If you don’t buy a property at a competitive price initially, then the strategy tends to fail from day 1.
- It is hard to add significant value to a property if the initial purchase price is high. There is a saying, “the profit is in the buying, not the selling” Control your refurbishment costs.
- Consider a fixed-price contract with the contractor, because if costs rise during the project, this will mean your ability to refinance and extract your cash reduces.
Example Of BRRR Strategy
A client acquired a 3-bedroom townhouse from a retiring couple requiring updates and modernization.
Market Value: £155,000
Property Purchase Price: £145,000 – Negotiated with a quick closing using a blend of personal funds and a short-term loan.
Renovation Expenses: £18,000
Post-Renovation Value: £235,000
Buy: The property was purchased for £145,000, with additional costs including Stamp Duty (£4,500) and Legal Fees (£1,500), resulting in a total acquisition cost of £151,000. This was financed with a 75% LTV mortgage (£108,750), requiring an initial investment of £42,250.
Renovate: Renovation costs amounted to £18,000 and were completed within 25 working days.
Refinance: Post-renovation, the property’s value increased to £235,000. It was refinanced with a 75% LTV BTL mortgage (£176,250), allowing the client to pay off the original mortgage (£108,750) and release £67,500 in equity for future investments.
Rent: Rental income from the tenant was £1,300 per month, while the BTL mortgage payment was £800 per month, resulting in a monthly net profit of £500 (Rental Income – Mortgage Payment).
|
Stage |
Description |
Amount |
|
Buy |
Property Purchase |
£145,000 |
|
Stamp Duty |
£4,500 |
|
|
Legal Fees |
£1,500 |
|
|
Total Acquisition Cost |
£151,000 |
|
|
Financed with a 75% LTV mortgage |
£108,750 |
|
|
Initial Investment (Down payment, Stamp Duty & Legal Fees) |
£42,250 |
|
|
Renovate |
Renovation Costs |
£18,000 |
|
Completion within 25 working days |
||
|
Refinance |
Post-Renovation Property Value |
£235,000 |
|
Refinance with a 75% LTV BTL mortgage |
£176,250 |
|
|
Pay off the original mortgage |
£108,750 |
|
|
Net Equity Release for future investments |
£67,500 |
|
|
Rent |
Rental Income from tenant |
£1,300 per month |
|
BTL mortgage payment |
£800 per month |
|
|
Monthly Net Profit |
£500 (Rental Income – Mortgage Payment) |
BRRR returns VS Conventional Buy-to-Let (BTL) investment
Buy Refurbish Refinance Rent allows investors with limited cash funds to recycle their cash deposits by adding value to a property, therefore not relying just on the valuation of the property going up in value before they can refinance to raise funds for their next purchase. Waiting for properties to increase in value can take 3-5 years, but using the BRRR strategy, the value can increase in 6 months and funds can then be extracted for the next deal.
Frequently Asled Questions (FAQs)
For the initial purchase, you will typically need a 15-25% deposit for the bridging loan, which can come from your own cash sources or a private investor. The lender will require this deposit to minimise their risk.
We have several lenders that can lend 85% for light refurbishment projects. For larger projects such as a heavy refurbishment, you will need a deposit of 25% initially, but the lender can then provide 100% of the funding for the works.
Alternatively, we have arranged deals with 100% finance on the purchase, where the client could offer additional security over another property where there was enough equity to give the lender comfort to go to 100% of the purchase price. This area can get complicated so it is best to discuss on a case-by-case basis.
From a loan application process perspective, we are able to obtain a credit decision for a BRRR loan within a few hours. This will assist you to secure the property.
The whole purchase can be completed within 4 weeks. We ask clients to keep in contact with us as the renovation is carried out, so we can start the application for the buy-to-let mortgage in plenty of time and get the bridging loan repaid at the earliest possible time.
Buy it right – It is extremely hard to add value to a property if the initial purchase price was high. There is a great quote from Sir Alan Sugar “The profit is in the purchasing”.
In a hot property market, it’s difficult to buy below market value; but for unmodernised, run-down properties, the market for a cash 4-week purchase (using bridging finance) becomes more achievable to obtain a bargain.
Add value – This is the key. The works undertaken must be of high quality and to such a level that the finished property’s value has increased to allow the funds you have invested to be recycled.
Deliver on time and to budget – If the project takes more time the bridging loan costs increase, and any cost that overrun dilute the increased value you are seeking to achieve.
We have financed properties where we didn’t recognise the finished property from the original we financed at the start. The WOW factor had been achieved, more space had been added, the project was delivered on time & to budget and the result was a large increase in value for the client.
We do see real-life cases we have refinanced, where the client has managed to recycle all of their deposit for the next deal, but it is not easy and like any career involves hard work and dedication.
If you believe the property investor trainers; you can pull out or recycle all of your money and repeat, repeat, repeat forever.
These trainers are selling you a course that can cost thousands of pounds and they want to make it sound as easy as it can be!
However, we have seen cases we’ve refinanced, where the client has managed to recycle all of their deposit for the next deal, but this is only possible if your initial purchase price is a good one. You can then add significant value to the property through the renovation.
It is possible and we have seen these deals, but it’s not easy; like all vocations in life “Hard work pays off!”
An investment carries some element of risk but if correctly carried out, then this strategy has proven to be very profitable for property investors. The key success factors are:
Buy a bargain – These properties usually don’t attract many buyers because of their conditions, so make an offer below the market value and say you can complete in 4 weeks.
Add value in the refurbishment process and get a good contractor to carry out the work.
Use a broker/adviser that knows the process inside & out, to make sure you can refinance as soon as the property is finished.
Any property; residential, commercial or mixed-use in any condition. Derelict, unmodernised or empty properties tend to work best as they give the most significant opportunity to add value and recycle more of the initial deposit.
A bridging loan is a short-term loan used to help you ‘bridge the gap’ when you want to buy something, but you’re waiting for funds to become available from the sale of something else.
