Buy, Refurbish, Refinance

Commonly known as BRR, this is a popular investment strategy with potentially high returns and the added benefit of multiple exit strategy options.

It is best understood by watching our 18 minute video, but for those who prefer reading the main points are listed below.

How It Works

BRR works when an investor is able to purchase a property which has ample scope for adding value, in this case by refurbishing from a rundown condition to match or exceed the quality of other similar properties in the area.

Some people believe you have to purchase BMV (below market value) for BRR to work, but this is based on a misunderstanding of the difference between the current market value of a dilapidated property requiring refurbishment and that of a similar property in top notch condition.

Regardless of the eventual purchase price, the main consideration is that when complete, the property needs to be worth more than the sum of the purchase price, buying costs and refurbishment costs.

BRR vs Flip

So Buying and Refurbishing are self explanatory. It is at the point of refurbishment completion that our first exit option arises. If for the purpose of simplicity we neglect the interest paid during the refurbishment period and we assume that there are no redemption penalties on the finance we used, then we have effectively spent £29,000 to increase the property value by £45,000. So if we were to sell the property on at this point (known in the industry as a “Flip”) then after repaying the purchase loan and retrieving our deposit we would be left with a profit of £16,000. Not bad really for a couple of months work! And equivalent to a one-off return on capital employed (total money in which was £54,000) of 29.6%

However, there is a better way. One which gives you even larger gains on future capital growth. One which ensures you retain control of the property and benefit from any cash flow it generates. One which will even allow you eventually (or sooner depending on the detailed circumstances) to take out ALL of your original investment and effectively own the property for FREE.

Refinancing – Where the Magic Happens

The magic happens when you come to take some (or even all) of your original stake out of the deal by keeping the property and refinancing it against its new valuation. What this means is that you use the increase in property value to leverage a new, larger mortgage allowing you to pay off the original mortgage with a substantial sum left over which belongs to you.

And by NOT selling the property, YOU are the one that will benefit from it’s future Capital Growth.

In the example above the new value was not sufficient to allow ALL your initial stake to be withdrawn immediately, but given that the property value is likely to double every 10 years it will not be long before you ARE in the position to do so.

Beyond the 2nd “R”

If you do watch the video you will see that from about 11 minutes 45 seconds it explores how the investment works on a purely Capital Growth basis. It is unusual and probably pointless to consider relying purely on capital growth – although the example shows that it does work in theory.

Much better in reality to rent out the property generating revenue to cover all ongoing costs, thus allowing you to sit back and watch the asset appreciate without having to dig in your own pocket to finance and maintain it.

Next Steps?

If you are excited by the possibilities opened up to you through investing in BRR, why not book your FREE no obligation initial Zoom call with us and have a friendly chat to explore the possibilities and options open to you? Simply click the button below and select your preferred time slot.