BRR stands for Buy Renovate Refinance, which basically means that you buy the property with cash on hand, undertake refurbishment work to bring it up to scratch, refinance your loan at the new value after the work is completed and then start renting out your property.
So, how does Buy, Renovate, Refinance work? Here are the steps:
Step 1: Find a property that needs renovations in an affluent area.
You look for a knackered property in need of some love! This property needs to be in an area with good DUV (Done up values). It also needs to be purchased at a significant discount. Remember, you make your money when you buy!
You secure this property for £65k and purchase it in cash. Assuming you spend £5k on other costs such as legals and surveys etc. You have now outlaid £70k in total.
Step 2: Renovate the property to increase its value.
You now own the property and need to remove the swirly carpets and net curtains. So you spend £15k on renovations. This now takes the property up to the standards of the rest of the lovely houses in the area.
You have now spent a total of £75k + £15k = £90k
Step 3: Apply for a mortgage on the property with the new value
You check the comparables in the area and identify that your property is now worth £110k. So you apply for a BTL mortgage on the property.
Example mortgage particulars for this could be, 3% Interest only and a 75% LTV (Loan to Value).
This means you would receive a loan of £110k x 75% = £82.5k Given that you have only spent £90k on the property in total, you have just received £82.5k back.
So you have only left £90k - £82.5k = £7.5k in the deal.
You've just bought a house for £7.5k!!
Remember, you make your money when you buy!
Step 4: Rent Out the Property
Your monthly payments would be:
£82.5k x 3% = £206 per month
So, you now rent the property out at £600 per month: £600 - £206 = £394
and you're now making £400 per month from a seven grand investment.
Step 5: Rinse and Repeat by recycling your capital.
Now that you've regained back your capital through the remortgage, use that to find your investment property. The cycle continues...
BRR is a popular strategy for property investing because it allows you to spend less money upfront. By following the steps above, you can keep recycling your capital to increase your portfolio with minimal amount spent!
How can Property Store help?
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