For many years now, buying property to rent out has been the preferred way to invest for smaller investors. Rising property values, low interest rates and greater disposable wealth in the 1990’s were to blame for the influx of buy-to-let landlords. They provided excellent passive income, healthy capital gains and there’s always been a healthy demand for rental properties from those who aren’t able to make it onto the ladder themselves. Despite the government hitting the BTL investors with restricted tax relief on interest payments, tighter regulation on mortgages and higher mortgage rates, all is not lost. Here’s why the BRRR strategy might be the right one for you.
What is BRRR?
BRRR stands for: Buy, Refurbish, Refinance, Rent
The Benefits of BRRR
BRRR strategy recycles your money and makes it go further. It means that you can leverage money that isn’t necessarily your own to buy investments to grow your portfolio. There is absolutely always demand for rental properties. Given the rise in cost of living, this isn’t going to change any time soon. Property prices typically double every 10 years so as long as you accept that you’re in it for the long haul, you can’t really lose.
The Method
Buy a house that needs some TLC, that you know you can add value to. Purchase is the most critical part of this strategy, you must be buying under market value properties. Preferably in cash. Refurbish the house to a good standard but make sure you don’t go overboard. You’ll need to recover the money that you’ve spent. Have a stringent budget to maximise your ROI. Getting the right contractor to work alongside you on this part of the project to provide the lowest cost but highest quality is the key. Maximise the rental income. Once your refurbishment is complete (or even before), get the property advertised for rental. At this point in the process, that cashflow will be higher than a typical BTL property as you’ve not yet refinanced it onto a mortgage. Refinance. Now it’s time to refinance the property onto the right mortgage product (a good broker can support you with this) and pull out your equity. Once the cash from the refinance is back in your pocket, you can pay back your investors, invest in another BRRR or consider bigger, more meatier projects.
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