The BRRR method is a way to invest in property. It focuses on buying a property, improving it and using its increased value to support future plans.
For some people, the improvement stage may involve careful budgeting or exploring ways to fund the work, such as a home improvement loan.
The BRRR method could be an option to consider if you want to build a portfolio over time. But like any financial decision it’s important to understand how it works before getting started. This article is for information purposes only and we are not giving advice. If you wish to explore this type of investment further, consider talking to a financial adviser.
In this guide, we’ll cover:
- What the BRRR method is
- What each stage involves
- Things you may want to consider
- How you could fund refurbishment work
What is the BRRR method?
BRRR stands for Buy, Refurbish, Refinance, Rent. It involves buying a property that needs work, improving it and then refinancing it once the improvements have been completed.
The aim is to increase the value of the property through refurbishment. Once the work is finished, some investors may choose to take out a new mortgage based on the property’s new value. This could allow them to access some of the money they have invested and use it towards another project.
The four stages of the BRRR method are:
- Buy: purchasing a property with potential for improvement
- Refurbish: carrying out work to improve the property
- Refinance: arranging a new mortgage based on the updated value of the property
- Rent: letting the property to tenants
Each stage requires careful planning. It’s important to understand the costs involved, the work needed and whether the approach is right for your circumstances.
Note: You might come across some articles that add a fourth ‘R’ onto the end of “BRRR”. This simply stands for ‘Repeat’. It highlights that you could use the profit from following the BRRR method to invest in more property and follow the process again.
How does the BRRR method work?
1. Buy
The first step is to buy a property. This is often a property that needs repairs or updating. Because of its condition, it could be available at a lower price compared to similar homes nearby.
Some investors look for properties that:
- Have cosmetic issues that are relatively simple to fix
- Have potential for layout changes or extensions
- Are in areas where rental demand may be steady
The aim is to find a property where improvements could increase its value.
2. Refurbish
Once you own or have a mortgage on the property, the next step is refurbishment. This is where you make improvements to the property to increase its value and make it suitable for tenants.
The work involved can vary depending on the property. It may include:
- Replacing kitchens or bathrooms
- Updating flooring, lighting and decor
- Repairing structural issues
- Improving insulation or energy efficiency
- Adding extensions
Refurbishment costs can vary widely. Some projects may be relatively straightforward, while others may require more time and investment.
Planning is important at this stage. Unexpected costs or delays could affect your overall budget.
3. Refinance
After the refurbishment is complete, the property may be worth more than when you first bought it.
At this stage, some people look to refinance the property. This usually means taking out a new mortgage based on the updated value. If the value has increased, you may be able to release some of the equity tied up in the property.
This money could then be used for other purposes, such as:
- Funding another property purchase
- Covering costs from the original project
- Supporting further improvements
It’s worth noting that refinancing is not guaranteed. Lenders will assess your circumstances and the amount you can borrow may depend on various factors.
4. Rent
Once the property is in a suitable condition, it can be let to tenants. Rental income could help cover:
- Mortgage repayments
- Maintenance costs
- Insurance and other expenses
Over time, rental income could also provide an additional source of income.
Why do some investors use the BRRR method?
If you’re looking to invest in property, the BRRR method could offer a structured approach.
Some of the potential benefits include:
- Adding value: Refurbishing a property may increase its market value. This could create an opportunity to access more equity later on.
- Reusing your funds: One of the key ideas behind BRRR is recycling your investment. If refinancing allows you to release equity, those funds could be used towards another project.
- Generating rental income: Once the property is rented out, it could provide a regular income stream. This income may help with ongoing costs and could contribute towards long term financial goals.
- Building a long-term investment: Property is often seen as a long term investment. Using a structured approach like BRRR may help investors plan their next steps more clearly.
Things to consider
While the BRRR method may offer potential benefits, you may want to consider the following:
- Refurbishment costs could be higher than expected: Unexpected repairs or delays can increase costs. This could affect your overall return.
- Property values may change: Property prices do not always increase. If the value of the property does not rise as expected, refinancing options may be limited.
- Refinancing is not guaranteed: Lenders will assess your financial situation before approving a new mortgage. There is no guarantee that you will be able to release equity.
- Rental income is not guaranteed: There may be periods where the property is empty. Maintenance costs and tenant changes can also affect income.
- Time and effort: Managing a refurbishment project can take time. It may also require working with contractors, managing budgets and handling unexpected issues
If you’re considering this option, a qualified financial adviser could help you decide whether it’s suitable for your circumstances.
How could you fund the refurbishment stage?
One of the most important parts of the BRRR method is funding the refurbishment work.
The cost of improvements can vary depending on the property and the type of work needed. Some people may use savings to cover these costs, while others may look at different borrowing options.
Some ways you could fund refurbishment work include:
- Using savings: If you have money set aside, you may choose to use this to pay for improvements without taking out finance.
- A home improvement loan: This could help you spread the cost of renovation work over a period of time. A secured home improvement loan allows you to borrow against a property you own and repay the amount over an agreed term.
- Remortgaging: Some homeowners choose to increase their mortgage amount to release funds for home improvements. This may depend on your circumstances and whether you are approved by your lender.
The right option depends on your circumstances, how much work the property needs and what you can afford to repay.
If you already own a property and need funds for improvements, a home improvement loan could be an option to consider. At Evolution Money, secured loans are available to eligible customers looking to fund projects such as renovations and upgrades.
Is the BRRR method right for you?
The BRRR method may suit some investors, but it may not be the right approach for everyone.
You may want to consider whether:
- You’re comfortable with taking on property renovation projects
- You have a clear understanding of the costs involved
- You understand and are comfortable with the potential risks.
- You have a long-term investment plan
You may also want to think about whether you have the money saved up for the refurbishment work, or whether you’ll need to take out a loan.
At Evolution Money, we offer secured home improvement loans to homeowners aged 21 to 70, with repayment terms from 3 to 20 years.
You can check your eligibility online today without affecting your credit score.
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
