If you live in the UK, then you probably have heard the term “BRRRR” thrown out a lot by property investors. Yes, it’s quite cold over here, but that is not the sound of property investors freezing. So, what is BRR in property?
BRRRR is an acronym for Buy, Refurbish, Rent, Refinance, Repeat. This reliable method for investing in properties is useful for long-term planning.
How does it work? Simply put, you purchase a property below the market value, and then refurbish it to increase its value.
Then, you find tenants for that property so that you can earn a steady flow of income.
Once you have that secured, banks will find your property attractive as collateral for a loan.
But wait, there’s more! Your next step involves refinancing your property at its increased value. This allows you to purchase a second property and do it all over again!
This continuing process makes BRRRR a stable investing strategy.
What is BRR in Property? What Steps are Involved?
1. Purchase a Discounted Property that is in Dire Need of TLC
Before you get yourself involved in BRRRR, you must understand that getting your purchase right is crucial. The outcome, that is either success or failure, depends on it.
Your starting point should be going in search of the most affordable places for buying property.
Suppose you come across an under-market-value (UMV) property. Make sure you can give it a makeover that increases its worth.
Decent working-class neighbourhoods are where you will find such properties that require ‘tender loving care’ or TLC.
As always, reach out to an expert sourcing agent.
A qualified property manager can help you in figuring out the estimate of the property’s worth after you renovate it to the standards of its area. A skilled investing consultant will also come in handy in this regard.
What’s missing in all this is funding, preferably in the form of cash.
Cash equals to a swift and trouble-free transaction with the seller, which in turn gets you a good deal. Also, do not forget that you need enough fund to afford the makeover.
Aside from cash under your floorboard, you can get your fund through private loans, seller financing, or even bridge loans. So, plenty of options to choose from.
These alternatives imply variations in the acquisition, deal configuration, and holding costs.
2. Nothing More and Nothing Less than the Area Standards
You must consider your primary focus to be fixing the property to make it liveable, and any additional work that is necessary to add more value than their expense.
Remember that your expenses are recoverable through maximisation of your return on investment (ROI). But for that, you must make wise renovation decisions.
High-end appliances, hot tubs, costly flooring, and decorative lights are all excessive upgrades.
You must bear in mind the target market and their expected rental quality. If your makeover is a bit much, it will eat away at your profits. This is a common mistake by first timers.
If this is your first rodeo, then stay away from properties that require heavy renovations. Go for properties that only need a minor investment, such as a fresh coat of pain, or revamping the kitchen and bathroom, maybe even adding a new bedroom.
The following upgrades will help speed up appraisals:
- Completing unfinished kitchens
- Developing an extra unit surrounding the house
- Drywall repairs
- Modernising bathrooms
- New and improved roofs
- Adding new bedrooms
Another deciding factor for your success or failure is getting the right contractor. You should consider options that are not expensive but do not downgrade the quality.
3. Rental income to the Fullest
So, what is BRR in property, especially when it comes to rental houses?
BRRRR is a method specifically designed for rental homes, therefore finding tenants is the next reasonable step in the process.
As soon as you finish with the makeover, you should put up the “For Rent” sign up. Then watch the cash pour in.
The cash that comes in is more than the usual property investments in the beginning because, for the time being, there is no mortgage on the property.
You do need to be the typical property owner, but you still must choose your tenants wisely. Your monthly rental income depends on you picking the right tenants.
To get tenants rushing to live in your property, the upgrades must be done well, and the price tag must be reasonable in terms of market rates.
Unfortunately, there is always a chance that things might not turn out great for you. You might be constantly having to deal with repair, maintenance, and rental expenses. Or maybe you end up with bad tenants.
The result will be your property’s value decreasing and you facing loss.
Do not let this stop you from investing in properties via the BRRRR method. It is only to ensure that you understand how important is to evaluate the renting aspects, so that you don’t end up in loss.
4. Refinance to Get your Equity Out
You have now arrived at the refinancing stage. Luckily, presently it is easier to locate a bank that is up for refinancing single-family rental homes.
First, you must figure out the seasoning period of the prospective banks. The duration you have owned the property before the bank can help you out in refinancing is known as the seasoning period.
So, do your research and reach out to as many banks as you can. Your initial buying decision and the standard of your upgrade are deciding factors for money you can directly get out of the property.
Your best bet is to connect with a mortgage broker who will display your deal to various lending institutes. This way, you can get your hands on the greatest deal imaginable.
5. Keep Repeating to Increase your Income
The cash you get from refinancing the first rental property you own can be used to buy a second property and give it a makeover.
You will find this step to be the most exciting part of the BRRRR Method.
In this part of the process, you can implement everything you learned and improve your approach. Which will result in fewer mistakes.
Word of advice for the wise, get yourself used to the idea of working with data. By creating a quantitative system, you can achieve your goals with time.
Another essential part is documentation. If you have everything documented, you won’t have to stress about having forgotten or overlooked anything.
Your very first attempt at the BRRRR process is going to be difficult, and you might make some errors. With time, you will gain the experience and knowledge to make your journey profitable.
Financing the Purchase of a BRRRR
Of course, you are wondering about how to finance BRRRR properties, and rightfully so.
Yes, you can finance a BRRRR property, but there’s a catch. There’s always a catch. If you wish to buy the property at the most reasonable price, you will have to pay for it in cash.
The deal will close swiftly and easily, giving the seller some much needed peace of mind. It saves time as you do not have to go through the hectic procedure of getting your hands on a loan.
By paying in cash, you can explain the extreme price drop since the seller is getting rid of the property quickly. There will be no need for inspections by banks and you won’t need to get approved by the bank for your creditworthiness.
Nevertheless, financing your deal is still possible through the following BRRRR strategy example:
The rates for bridging loans are far more than the rates of bank loans, but on the plus side, it’s a quick route and can take care of renovation costs.
With this method, you can get your hands on cash in a swift motion.
The biggest problem with bridging loans is that in comparison to other options, you are going to have to deal with higher rates. So, make sure to do your due diligence before jumping in to the BRRRR method with no money.
Private lenders are exactly what the name suggests. It’s people you know on a personal level who can invest in your property. Business partners, acquaintances, and friends all fall into this category.
The property for which you require financing and the dynamic of your relationship with the lender are factors that determine the lending rate.
You can also get finance to renovate the property from anyone who meets the criteria of a private lender. And that is how you can use the BRRRR method with no money in your pocket.
Let’s summarise what is BRR in property. The BRRRR process includes buying, refurbing, renting, and refinancing and property you think is right for you, and then repeating the entire process. With this method, you can invest in multiple properties and build a strong portfolio.
Of course, as with everything else, there are risks involved. However, this strategy is manageable with the careful calculations and comprehensive rechecking since the day you start.
Extensive research during the process and systematically evaluating all the numbers will help you avoid any pitfalls when going down this road.
By using BRRRR, you can create a steady flow of income while living in the UK, even if you are a foreign investor. Make sure you invest your money and time wisely to achieve your goals and make it work long distance if that is what you require.