What Is The BRRR Property Strategy?
Do you know how to use the BRRR strategy?
Discover what the BRRR strategy is, why it's so effective and a breakdown of a detailed case study…
This podcast episode is dedicated to the BRRR strategy. I specialise in Rent-to-Rent; however, I'm very strategic in how I spend the money I earn from my Rent-to-Rent properties. You need to be careful about how you spend your money. It's my personal belief that you should re-invest that money into assets. Once you have re-invested your money into assets, and those assets start to make money, then you can go ahead and spend the money as you wish.
I have been disciplined, re-invested over the past couple of years, and now we're about to buy property five and six!
So what is the BRRR strategy?
Let's run through an example, the general concept is that you buy a property below market value. On the street that you are looking to purchase properties are selling for £280 - £300k. You manage to find a property that needs a significant refurb with a motivated seller, and they accept an offer for £200k.
*(Disclaimer - we are only running through rough figures that do now include fees etc, for the purpose of this example.)
You could buy the property cash or secure a Buy-To-Let mortgage, where you would need to put down 25%, so in this scenario, £50k. You would also need to invest £25k to refurbish the property.
At the end of the mortgage term, you can refinance the property, and a new lender will come out to assess the property's value. They will be able to see that you have added a new kitchen, replaced the boiler and increased the curb appeal. They will also research and find out that one of your neighbours has recently sold for £290k and decide your property is worth £300k.
The new lender will lend you 75% of the properties value. If you leave in 25%, that would mean keeping £75k in the property. This means you have no money left in the deal! You now have £75k equity in the property, and the bank has given you a mortgage of £225k that you need to pay £150k from the original purchase. And you get to keep the £50k original deposit plus the £25k you have used to refurbish! Which means you have the house for free! Crazy!
You can go again, and again, and again. This is why some people call it Buy, Refurbish, Rent and Refinance. BRRR.
Listen to this weeks episode to find out more.
Available on iTunes, Google, Spotify and others or click “play” on the player below!
Join a community of likeminded people with ambitious property goals, where I post daily property insights and motivational content request to join my Creative Cashflow FB group here.
As always, if you have any questions, please don't hesitate to contact me directly. You can direct message me on Facebook or join and ask me your questions within the Creative Cashflow Community.
Podcast Transcript↓
[00:01:05] I'm Simon and welcome to another episode of the podcast where we talk all things property. Creative cashflow. And of course, how to be financially independent today, not in 25 years. And the reason that is our mantra is because we've realized that we're in dark. Economic times and the system is broken.
[00:01:33] What they teach you at school is wrong, or at least it's not focused enough on financial literacy and as a result. So many. People these days are getting trapped in the rat race and they're unable to ever get financially independent. And I realized this a few years ago, I realized that I had to do certain work and I had to do certain things.
[00:02:00] And if those things stopped because of something out of the ordinary, such as COVID, I would be good and be able to adapt and be able to have other forms of income to make sure. That I could keep my family. Good. And thank goodness I did. And now I just, I'm on a mission to share it with as many people as possible to help you so that you can save God your future.
[00:02:24] Because I know a lot of you are going through some really tough times at the moment, and I want to try and give back to help. So today's episode is all about the bur the B R R R, and yeah, whilst I am a rent to rent expert in advert commerce, uh, or considered one, I personally believe that you don't blow that money, go and spend it.
[00:02:49] What you do is you reinvest that money into assets and. Once you've reinvested that money into assets and those assets make money, then go ahead. Yeah. Then you can blow that stuff, you know, but you want to make sure that you're reinvesting the cashflow in the first instance. And thankfully, through doing that over a couple of years, we're about to buy property number five and six, which is a celebration.
[00:03:16] Um, it's just, uh, overwhelming could never have imagined doing this just two years ago. So it is absolutely possible. So what is the brrrr strategy? All it is is generally speaking. If you've got a deposit to buy a house and you put it into one house and you buy at the market value and you sit on it, you've swallowed up all your deposit and you're stuck.
[00:03:46] This happens a lot. When people buy properties to live in, you know, you and your partner club together put 60, 70, 80, a hundred grand into one house, fix it on a five-year term. And then that money's gone. You can't leverage that money. You will benefit from the capital appreciation of that asset, but that's it.
[00:04:07] And if you listen to rich dad, poor dad, his definition of an asset is something that pays you every month. Doesn't take money from your account every month, which is why I believe the house you live is not an asset. It's a liability. Okay. But it also happens in terms of rental properties. If you buy a property at too high of a price, you are unable to add value to recycle that cash.
[00:04:39] So before I go any further, I just want to define refinance for any buddy that's brand new because no. Question is too stupid here. And I want to do this from the ground up so that wherever you're at, you really get this concept because it's when you've got a property on a mall, there'll be a fixed term.
[00:05:03] And following that fixed term, you're able to refinance without any charges, which means you can find another lender that will lend you the money. Against the property. And as you, as time goes by that the value of the property is likely to increase and therefore they are likely to be willing to lend you more, which could increase your equity and allow you to pull money out.
[00:05:28] So that's what people talk about. They refinance the house. And then you buy an extension, um, or they, they refinanced the house and then go on a holiday for obviously we're property investors. So when we refinance a house, we reinvest that into more properties. So the general concept is you buy a property below market value.
[00:05:50] Let's say, for example, there's a property that's, you know, Properties on that street. One's in great condition and going for two 8,300 grand and you managed to pick up a battered one, um, with a motivated seller that needs loads of work. And you managed to do that. You mentioned to pick it up for 200 K.
[00:06:11] 200 K and let's say you then need to add 25 grand. So you brought it. You're now going to refurb it using 25 K your total investment now is 200 for the purchase and 25 for the reefer. That's a total of 225,000 pounds. Look, I know what you're thinking, Simon. I don't got 225,000 pounds. Well, don't worry.
[00:06:36] You don't need it yet. You could buy a cash, but you could also just get a mortgage on it. So if the purchase price was 200 K you would just need to put 25% down, which would be 50 K quick. Disclaimer, we're not talking about fees. We're not talking about . We're just talking about rough figures as an example, right.
[00:06:58] Then what you can do. Is once you come to the end of that term, you can then refinance the property and a new land or the existing land will come out and say, Hey, I can see your point in a new kitchen. I can see you've changed a boiler. I can see that you've done some curb appeal. We think this house is now worth 300 K because your neighbor's house sold for two 90 last week.
[00:07:24] We think yours is worth 300. So then what they'll do is they will lend you 75% of the value of that property, which in this instance would be 225 K. Well guess what? We spent 200 on the property. We spent 25 K on the refurb property is now worth 300. We've got a leave 25% in as a deposit, which is 75 K, which means.
[00:07:54] We've got no money left in the deal. So what's happened is you've now got 75,000 pounds in equity in that property. The bank lend you 225 K from that 225 K you've got to pay back the 200 grand that you used to purchase. And the 25 grand you used to refurbish, which means you've got the house for free, crazy.
[00:08:22] And then what that means is you can go again and again and again, and that's why some people call it the buy refurb rent refinance, and then repeat to recycle your cash. The great thing about it is not only do you get the asset. For free, not only do you build 75 K of equity within the house, but you also then benefit from the monthly passive income because you don't need to sell the property.
[00:08:52] You hold onto it. If you don't build that level of value into the property. And let's say you brought it at two 80 and it's now worth 300, you spent 25 on the refurb. There's you've got no equity that well, you've got no equity that you can withdraw from the property. And that's what I do. So I get the money from the rent to rents.
[00:09:19] Get the money from the rent to essay, went to HMO's. Then I build it up, build up the pot, invest in property, add value. Pull out the money and then go again and again and again. And that's how you manage to grow a massive portfolio. As I say, we are about to hit property five and six through doing this, this stuff works so.
[00:09:42] I'm going to be doing some more episodes on brr are real case studies and exactly how you do this. If you like this episode, if you want to see more of this stuff, DM me on Instagram at Simon Smith on line. But trust me, this stuff is powerful and I really, really hope that you found. This useful.
[00:10:14] Thanks for listening. For more information, check out Simon Smith, online.com. See you next time.