BRRR method – The easiest way to make money in properties.

Property has proven to be a very successful investment over the last few decades. House prices have soared even through rough economic times. Investors from all backgrounds have been investing in property and the market has become fairly saturated, people are struggling to get the quick high return they once were. The BRRR method is proving to be one of the best methods in the current market.

What is the BRRR method?

BRRR stands for: buy, refurbish, remortgage, rent. It essentially involves finding a distressed property, adding value to it, replacing your equity in the property with debt and then renting it out for 100% profit.

Step by step walkthrough

Step 1 – buying the property

Searching for the best run down properties in your area. Placing a lower bid than what it’s listed for as people who own these properties are usually desperate to sell. Another route you could go down is an auction, where many distressed properties are sold. Be careful if it’s your first auction not to get carried away and overpay for the property, squeezing your profit margin. Auctions are usually full of experienced developers so it can be hard to find a bargain.

Step 2 – Refurbishing the property

Making structural or aesthetic changes will increase the value of the property. Adding another bedroom to a property could add as much as 20% to the value. This can be done by converting garages, lofts or an extension. Other improvements could be modernising the kitchen or bathrooms or simply just making it a more attractive property. Be careful not to take on more work than you can handle, if this is your first renovation property don’t buy a subsiding property for example. This is one of the easiest ways to lose money on a project due to unforeseen costs. At first, it’s important to gain experience rather than chasing the biggest profit margin. Renovation projects aren’t always as easy as they look.

Step 3 – Remortgaging the property

Once you have completed your renovation, get it revalued by an estate agent. If you have done well, the property should be valued significantly higher than you’re total cost (purchase price + fees + renovation costs). You can then use this new valuation to go to a bank and obtain a mortgage on it for your initial investment amount, using the added value as your deposit. If this is unclear the example below will talk you through how exactly it works.

Step 4 – Rent out the property

As you’ve used the BRRR method you now have none of your own money in the property so all the rent you achieve is complete profit. As you have none of your money in the property this method can easily be repeated time and time again until you have an impressive property portfolio. Remember that you still need to get the finance in the first place so it’s important to check how much you will be able to lend.

Example

You buy a distressed property for £100,000. You then spend £50,000 on renovation work. After refurbishment, it’s valued at £200,000, meaning you have a £50,000 capital gain. You approach a bank for a mortgage of £150,000 and use the £50,000 capital gain as the 20% deposit. This frees up £150,000 worth of capital that can be used for the next project!

pros and cons of the BRRR method

Pros

• Ability to make passive income
• Quickly grow your rental portfolio
• Ability to keep the repeating process
• Build equity during the refurbishment stage

Cons

• Work required to refurbish the property
• Difficulty getting a typical mortgage on a distressed property
• Don’t achieve the valuation you planned
• Length of time to refurbish the property
• Finding the right tenants to rent to