If you’re in the UK and have ever heard property investors saying “BRRRR” in their conversations, chances are they aren’t discussing the chilly weather!
BRRRR stands for Buy, Refurbish, Rent, Refinance, Repeat. It is a framework with a strong track record of profitability well worth considering if you wish to amass a fortune in the long run, especially if you’re interested in owning multiple properties in the UK.
BRRRR is a popular acronym in the world of property investing.
Through the BRRRR Method, you first buy a property below market value and enhance its worth by refurbishing it.
You then rent the property out for an extended period, allowing you to develop a monthly cash flow.
Now that the property is refurbed and producing monthly income, banks will be much more interested in using it as collateral for a loan.
And not only that, you will refinance your property at its new enhanced value (after doing all of the renovations), which will, in turn, allow you to buy a second one and repeat the entire process!
This continuity gives BRRRR scalability that is the cornerstone of any strong investing strategy.
In this article, we will arm you with the most important details related to the BRRRR method so you too can yield the high profits that this method has to offer. (Bonus: without even being in the UK!)
What are the steps of the BRRRR Method?
Let’s take a deeper dive into the steps of the BRRRR method.
1. Buy a discounted property that needs TLC
When setting out with BRRRR, getting your purchase right is critical in the process and typically determines the investment’s success or failure.
When investing in the UK, make sure you explore the most affordable places for property purchase as a starting point. Are you wondering where those are? Check out this blog post for guidance.
For the strategy to work, you must buy an under-market-value (UMV) property whose value can go up through renovation.
These properties are generally located in good working-class neighborhoods and need TLC (‘Tender loving care’). To find them, you should get assistance from an experienced sourcing agent.
A seasoned investing consultant or experienced property manager can provide you with estimates of what the property will appraise for after reconditioning it up to the area standards.
You will aim to invest only as high as 75% of the fair market value (FMV) in the purchase and repair. This way, you will come out on top with a solid return on your investment right off the bat.
To purchase the property, you need sufficient funds at your disposal, preferably cash.
Buying the property cash will allow you to serve the seller with a quick and painless transaction (allowing you to get a better deal), and you also need to make sure you have sufficient funds to pay for the renovation.
Other options that investors generally have to fund these deals include bridge loans, seller financing, or private loans.
These alternatives imply variations in the acquisition, deal configuration, and holding costs.
We’ll talk more about them later in the article; read on!
2. Refurb it to match the area standards, not more
The foremost concern regarding refurbishing should be to make the property suitable for living while adding renovations that will add more value than their cost.
You’ll need to recover the money you’ve spent, so the renovation decisions should maximize your ROI. So you will sidestep unproductive alterations in the building.
Unnecessary upgrades include expensive flooring, high-end appliances, hot tubs, and decorative lights.
Always keep in mind the expected rental quality that people in the area may be searching for. Over-refurbing a property will dramatically cut down on your profits, and it’s a prevalent beginner mistake.
Beginning investors should also avoid properties with massive renovations due. Instead, try to look for accessible renovations, like a coat of paint, kitchen and bath modernization, or adding a new bedroom to the property with minor investment.
These are some renovations that will quickly accelerate appraisals for you:
- New roofs
- Unfinished kitchens into complete kitchens
- Drywall renovations
- Updating bathrooms, including proper sanitary
- Additional bedrooms
- Building another unit around the house
Getting the right contractor to revamp the property is also at the heart of success in this phase, so explore options that will cost you the lowest without compromising quality.
3. Maximize the Rental income
BRRRR is a strategy tailor-made for rental properties, so renting is the next logical step.
After the refurbishing is done, you will put the property up for rent immediately, and the cash flow will begin pouring in.
This cash flow is higher than in traditional property investments initially because there is not yet a mortgage on the property.
Though this doesn’t require you to be a typical landlord, you must select your tenants carefully to ensure they make timely payments each month.
If the property price is appropriate compared to market rates and the renovations are done well, prospective tenants will quickly line up.
There is a possibility that things might not turn out to be in your favor, such as bad tenants, recurring maintenance and repair costs, and other rental expenses that exceed the produced income. These outcomes may shrink the value of your property in a hurry, resulting in a loss.
We are not telling you this to demotivate or deter you from using the BRRRR method. We only want to stress the importance of analytically assessing the renting dynamics, so things don’t go awry.
If you want to save yourself from making these mistakes, the best way to do it is to learn from the mistakes that others have made! In my course, I run you through exactly what to do to steer clear from costly errors I have made in the past, so you don’t have to go through them!
4. Refinance it to pull your equity out
In this step, the search for potential refinancing options can begin. It is comparatively easier now to find a bank that is willing to refinance single-family rental properties.
You need to find out the seasoning period of the potential banks. A seasoning period is the duration of property ownership before a bank can lend you the appraised value and be willing to refinance.
It’s best to research and talk to as many banks as possible at this point. The money you will be able to pull out from the property directly depends on the quality of your renovation and how good your initial purchase decision was.
The best way to go about this is to work with a mortgage broker to present your deal to multiple lending institutions and get you the best possible deal.
5. Repeat to grow your wealth
You should use the cash available to you from refinancing your first rental property to assist the purchase and renovation of your second property.
The repeat portion is no doubt the most enjoyable part of the BRRRR Method.
Here you can exercise everything you learned and smarten up your subsequent approach, making fewer errors.
A pro tip here is to get used to working with data. Building a quantitative system helps in accomplishing goals progressively. In addition, it will bring objectivity to your investing approach and pinpoint any likely mistakes.
Documentation is also critical. Have each record documented, and you will not have to worry about forgetting, missing, or overlooking something.
The very first BRRRR cycle is bound to be challenging for you, and you may make some mistakes. However, with the experience and knowledge gained, it will hopefully be a profitable journey.
Can I finance the purchase of a BRRRR?
The first (and biggest) question for a starting investor understandably relates to financing BRRRR properties.
You may be able to finance a BRRRR purchase, but there’s a caveat, to get the property at the best possible price, you’ll most likely have to buy it cash.
This allows you to close very quickly and gives the seller peace of mind, knowing that you don’t have to go through the time-consuming process of getting a conventional loan.
Paying cash gives you the ability to justify a steeper price reduction since the seller will get a fast sale, no inspection period (from banks), and no approval headaches when it comes to your creditworthiness (to get approved by the bank)
However, you can still finance your deal and give the seller that valuable cash using:
Private lenders are usually people you are familiar with at a personal level who are willing to invest in your property. They can be friends, business partners, or other acquaintances.
Lending rates may vary depending upon the property in question and the quality of your relationship with the lender.
There is also the possibility of getting finance from such folks for the renovation of the purchased property.
Bridging loans typically offer rates that far exceed those of bank loans, but they are quick and can also cover renovation expenses.
Using this method, you can get the cash you need fast.
The biggest drawback is that their rates are much higher than other options, so it is necessary to crunch your numbers in detail before deciding.
Keep on reading to find out how to use bridging loans even if you are a foreigner.
Can I do the BRRRR method in the UK as a foreign investor?
While foreign investors can apply the BRRRR method in the UK, they must be aware of any limitations that might come their way. For example, they will have to consider finding the right personnel and bridge financing sources.
Foreigners may be able to get access to Below Market Value properties, but mainly through sourcing agents. Unfortunately, it is not easy to find reliable sourcing agents as it takes time to build the connection and trust to make sure that you are always working with fully compliant agents.
Thankfully, our Property Investment Secrets Platform will take away your worries when it comes to finding the ideal sourcing agent for you.
Most times, the purchase of property happens using cash, and this is one way to speed up the process and why a huge discount is available on the property to begin with.
An option that foreign investors have with a limited amount of money can make use of is bridging finance. However, this option is more expensive than a local mortgage, and the investor may expect an interest rate anywhere from 6% – 12% per annum.
An alternative to a bridging loan is either a joint venture or an investor’s loan. Here, funds may open towards the first charge of the property.
For refinancing, mortgage brokers who have access to multiple lenders come into play.
Overseas investors have access to mortgages with loan-to-value ratios of up to 75% and interest rates striking from a minimum of 3.5%.
These rates are similar if you make a deal through an individual or a limited company in the UK, which is another feasible option for foreign investors.
How to Use Bridging Loans for the BRRRR Method?
Standard property investments involve a typical mortgage structure. However, in the BRRRR Method, you can also use ‘bridging finance’ loans to purchase a property. A bridging loan is a short-term way of financing property at its pre-renovation price.
Bridging loans close the gap between buying a property and getting a mortgage. After acquiring the property, revamping it, and renting it out, you can shift to a traditional mortgage a few months later using the cash flow generated in previous periods.
Before making such an investment, it’s best to consult an expert for advice, especially given the relatively higher interest rates of such loans.
BRRRR Method on UK properties without traveling to the UK
The only way to apply the BRRRR Method on properties in the UK without relocating is by developing and working with a team. So finding the right people to work on your behalf and in your best interest is of the essence.
The first and perhaps the most valuable person in your team is the deal finder (the agent).
Great agents wear multiple hats. They find suitable properties, close the deals and troubleshoot at every step of the way.
A good agent is an efficient project manager, knows local law like the back of his or her hand. So it is wise to pay that well-deserved commission and hire one.
It is best to take advantage of technology to find the right agent. Check online reviews and focus mainly on the number of deals under an agent’s belt. In some cases, you can also consider hiring a junior team member under a prominent agent.
The second key team player to focus on is a mortgage broker.
This member of your team will help you find the best possible lenders to fund your project (bridging and conventional loans included!)
Next, you’ll need a solid property manager.
This individual will advertise your property, find you the right tenant after performing background checks, collect rent, deal with renovations, and so on.
He or she will also be aware of the relevant landlord laws and handle possible evictions.
An excellent way to find a suitable property manager is to reach out to other investors and get a referral. Try your best to get one person to manage all your properties as you expand.
And finally, a hard-to-find but a critical piece to fit in your team puzzle is a contractor.
You need someone diligent and detail-oriented to fill this place. So once again, checking reviews and looking for referrals is the way to go.
For all your team members, the essential element to consider is communication. Timely, concise, and yet comprehensive exchanges will help your business flourish.
And be patient when establishing your team. A wrong decision early on can cost you dearly down the road.
BRRRR strategy involves buying, refurbing, renting, and refinancing a property and repeating the process. Through this method, you invest in additional properties and can one day potentially build a property empire!
Though there are certain risks, it is a reasonably manageable strategy with the proper calculations at each step and thorough rechecking since day one.
Doing heaps of research throughout the process and analytically assessing all the numbers will mute any potential downfalls in this strategy.
You can use BRRRR to generate a lasting income stream within the UK, even as an overseas investor. You’ll need a great team to accomplish this, so invest your time and money wisely for long-distance success.
We hope this article has made the concept and potential of BRRRR clear to you.
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