How To Get Your First BRRRR
I'm going to break down exactly how to get your first BRRRR!
Discover five simple steps to being successful in this popular property strategy….
If you're new to the strategy, check out some of my earlier podcasts where I break down in further detail but quickly recap.
The BRRRR model is, buying the property, refurbishing the property, re-financing and then renting out the property.
It's an extremely powerful model, for example, you could have a lump sum to buy one property, £50,000 - £70,000, typically you would be able to buy one property. Then you would need to save up to by the next one, but that takes a very long time. With BRRRR, you are forcing the capital appreciation of the asset, so within a 12-month time frame, you can re-finance and use the same money to secure the next property whilst you're still saving.
You can quickly compound your efforts to grow a large portfolio quickly.
Here are my top 5 steps:
1. Savings
Typically, you will need 25% of the purchase price, 3% stamp duty and around £1,500 for your legal fees. Additionally, you will need to project how much investment will be required to refurbish the property. As a rule, you will want to be adding £3 of value for every £1 you invest in the property.
2. The financial product
You will need to decide on the right financial product for you. That could be buying cash, a mortgage or a bridging loan. Make sure you speak to a broker who can give you professional advice. There are guidelines you will need to understand and comply with.
3. Pick your rental strategy
A great thing about my properties is that they can work with many strategies. For example, we may choose to operate a HMO, commercial or serviced accommodation.
Listen to this weeks episode to discover the final two steps to securing your first BRRRR deal…
Podcast Transcript↓
So you've heard about brr. You liked the idea of it, but you don't know exactly how to go about it. On this episode, I'm going to break down the exact steps you need to know to get your first, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, deal, sound good. You're in the right place. If you're brand new to the podcast, we do this every single Monday, we taught all things property.
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[00:01:37] The visualization of what we talk about right here. I want to be very open and authentic and show, you know, my listeners and my followers, the real deal, the highs, the lows, and the real deal behind building a rent to rent portfolio beyond. And fast checking your financial freedom. So let's get into it.
[00:02:01] How to get your first BR AR. Oh, that is, um, that's a question. A lot of you have been asking me and I thought I would just break it down in five simple steps before I do. If you're brand new to this strategy, the BR R I. All the RS. It is simple. All you're doing is you're buying the property. That's the be your refurb in the property.
[00:02:28] That's the first are okay. You're going to rent the property. You're going to refinance the property and then you're going to repeat, recycle, rinse, and repeat as many times as possible. Now, the reason this strategy is so powerful is because it allows you to take one lump sum. Let's say you got 70 K or 50 K and typically you would buy one property with that.
[00:02:56] Then you would save up, save up, save, save, save up. Buy another property and then save up, save up, save up, save up. But it takes too long. That's the issue with brr. We are forcing the appreciation of the asset. Okay. And what that allows us to do is to refinance some poor money. Almost immediately, or let's say within 12 months and then use the same money to go again, whilst you're still saving.
[00:03:25] And then if you compound these efforts, it allows you to grow a sizeable portfolio really quickly. So that's why BR is so popular. What you don't want to be doing. Is buying a property, you know, at the top end of the market and having to sit on it for 10 years, waiting for the value to appreciate before recycling your cash, because you will run out of money.
[00:03:51] And that will be that. So how'd you get your first one of these bad boys? Well, my first one was a. Two up two down simple terrorists property in Darby. I managed to buy it for in the region of 87 grand. We did a refurb and we refinanced at one to five pulling out around half of my money. I think it was pulled out around 20 K um, circa.
[00:04:20] I don't remember the exact figures, but then that allowed me to move on to my next endeavor. And I ended up putting that money into rent, to rent truths. Okay, but this is what you can do. If you've got money and you want to get on the property ladder in terms of owning, you can use this strategy. So first things first you're going to need money and there are a few different ways to do the BR RS.
[00:04:48] And I would recommend speaking to a mortgage professional. To make sure that you're on the right mortgage product and all of that. So I'm not going to get into that, but first things first, you need the money to buy the property and you're going to need the money to do the refurb, the improvements. Okay.
[00:05:04] That's the first thing you got to do. And typically speaking, you're going to need somewhere in the region of 25% of the purchase price, plus 3% stamp duty plus legals of around 1500 pounds. And then you're gonna. The amount for the refurb. And typically for every pound you spend, you want to be adding three pound to the value of the property.
[00:05:30] Second thing you're going to need is then the right product. Okay. Whether that's going to be a mortgage or a bridge, um, or, you know, maybe you're going to buy cash. You need to make sure that you've got the purchase strategy there as well. Speak to your broker, because there are certain guidelines and certain things that you are going to want to make sure that you would hear too, in this process.
[00:05:55] So disclaimer, speak to your mortgage broker on that. But the second thing is you're going to need to figure out your strategy to buy the house. Number three, you're then going to want to pick a strategy. So the great thing would be our ours is that they work with standard vanilla buy. They work with HMO, they work with commercial, they work with commercial, um, conversions, commercial to residential conversions.
[00:06:25] They'll work with serviced accommodation. So yeah, you need to decide which one of those strategies you want to fuse brr with because brr is not a strategy within itself. You then need to marry it with another one. And just to break that down, let's say you see a property, it's a three bed terrorist property, and you want to turn it into a five bed hate Shemot.
[00:06:51] You could do a brr on that. Yeah. You'd want to buy it at the right price at the value and then refinance a higher level showing the earnings by the way. And that's why I like to include rent in the Oz because once you rent the property and. The mortgage company ASTs they can see that you're, you know, that your cashflow in the property.
[00:07:15] And if you're using hate Shemot essay that cashflow could drive the value up because it's earning so much money. Number four. Yep. You guessed it. You've now got a find the deal. And a few point is on this is you want to be buying the worst property on the best. And the reason for this is simple. You need a spread between what you purchased the property at and what other comparable properties are selling for.
[00:07:49] In other words, if you pick up a property for a hundred gram and next door just sold for 200 and yours needs 30 grand or 40 grand worth of works, you can see there's a 60 grand uplift there for you to tap into. Yeah, it's a funny one, but what you can't do, I cannot stress this enough is you can't buy a property that's already in good shape already at the ceiling price for that road and do a brr.
[00:08:20] So if you buy a property for 180 grand, it needs 30 spending on it, but the highest comparable is 200 grand. Uh, that's not going to work. Okay, because you've got no value to add. So you want to buy the worst property on the best street, where there is a decent spread between what you're buying the property at the amount of works, the over acquired and the potential exit, you know, what the highest selling comparables are.
[00:08:50] And you want to ideally have comparables that have sold within the last one or two years and within, you know, a quarter. Or half a mile away from you. So if yours is a two bed, two up two down, okay. And your, you know, maybe you're picking it up for 150 grand and you can see one, two roads away that similar, like for like a two 20 you're onto a winner, but make sure they are direct comparables.
[00:09:20] If, if that other property expanded into the loft and had gavage is at the side. Clearly there is, that is a completely different offering. So you gotta be careful about that once you found the deal. Okay, you found a good spread. You found a property that's a bit smelly and ugly, and that you can add value to.
[00:09:42] Maybe you found a motivated seller that needs to sell quickly. You're now ready to move on to pull in the trigger. Okay, let's go. Let's buy it. Don't procrastinate. Don't over procrastinate. They say the best time to buy appropriately was a hundred years ago. Okay. Um, the best time was always yesterday, but the second best time is today.
[00:10:07] So don't procrastinate. And one thing I always think is I'm never selling the property I buy. So if I do end up going five or 10% higher than, you know, I would like, but I'm holding it for 25 years. Then it's not the end of the world, but whatever you do, don't get emotionally attached and don't buy a property where there is not a realistic uplift because you'll get stuck.
[00:10:32] Your money will get locked in the deal and you won't be able to go again. And that's what they talk about. They talk about how much money is left in there. So I've got a great video on this, um, 340 hate Shammo for free it's on YouTube. Go search that fringe and 40 K hate sham. Oh, for free. If you searched on YouTube, you will see how I managed to use this strategy to do a hate HMO and only 10 K in the deal whilst it's churning me out.
[00:11:03] Um, whoa, 15 grand a year. So the returns infinite, a few more months, I'll be out of the deal. And then it's completely infinite. Number five. You've then got to add. So, what you want to do is once you've completed, you then want to execute the works. Don't overspend, whatever you do, but you want to add value to bring it closer to the higher valuation that you want.
[00:11:32] Once you've done that, you're going to refinance and pour as much money out as possible and get ready for the next one. So that is the BR our strategy. That's what you need to do to get your first one. Okay. Get the money together. Find out how you're going to buy this property. Get professional advice on this next.
[00:11:55] You're going to pick a strategy. Are you going to do hate Shemot essay by today? Find the deal and last but not least add the value and get ready to recycle, but tons of content on the YouTube and on the podcast on this, if you've got any questions whatsoever hit me up at Simon Smith online on Instagram and whatever you do, don't wait 25 years.
[00:12:21] Okay,
[00:12:34] thanks for listening. For more information, check out Simon Smith, online.com. See you next time.