Now it’s time to talk about my favourite strategy used in Property Investing, the BRRR strategy:
You make your money when you buy. So with the BRRR strategy, you’re looking for the properties with the most problems. The uglier, and smellier the better.
As the name suggests, the property is refurbed to a high standard, increasing the value of the property to the true market value.
Once the refurbishment is complete, you can decide to either refinance or sell your property. You can refinance your property to what the new market value is, so you can borrow at the higher price and recycle the capital you put into the property. Selling your property for the new market value will allow you to gain a profit, which you can use to purchase your next property.
If you sell, you no longer have the asset, and will be liable for Capital Gains Tax. Whereas when you refinance, you can potentially pull most, if not all of your money out of the property, and you’ll be able to benefit from the monthly rent. With the money you pull back out of the deal, you can then go and do the same again with another property. That’s why we say recycle, because you can reuse your money over and over again.
If you have refinanced the property, you can rent it out. If you’ve calculated your numbers correctly, and done Due Diligence on the area, your rental income should cover your mortgage payments, any other bills, and still leave you with a profit every month. This also means you get to keep an asset that should hopefully continue to rise in value over time.
The last step is repeating the same process while improving on all aspects and creating more income for each cycle that repeats. When you refinance or sell your property, the capital gained can be used to purchase your next property.
This strategy works best for houses that need a full or semi-refurb. This is a great way to grow your portfolio.
Pros & Cons
- Build and create equity
- Recycling your initial investment from your first property purchase
- Helps grow a portfolio of income producing assets
- There’s a lot of competition for BRRR deals
- You cannot guarantee what the value of the property will be at the end of the deal, which means you may have to leave more money in the deal than you wanted.
- Increasing labour and material costs are making it more difficult to get accurate refurb quotes.
BRRR is a brilliant strategy to utilise for growing your portfolio. However, mistakes in a BRRR deal can cost thousands, so you need to learn how to do these types of deals properly before getting going.
Buy, refurbish and recycle is my favourite property strategy, and it’s what I look out for the most when I’m buying deals.
If you want to learn how you can get started with BRRR, then you need to come to my next free event. You can find the next dates here: https://www.alasdair-cunningham.com/free-training/property-accelerator/