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BRR – The Full Breakdown

BRR is a property model that has been widely used by investors for many years now and has grown in popularity in recent times due to its ability to further one’s capital, be it by completely refunding it at the point of refinancing or by stretching out capital to ensure that it goes much further than if you were buying standard ‘Turnkey’ or ready to let property.

It can be an excellent model when used wisely and can make even the smallest of working capital go much much further.

We have put together a full overview of a genuine BRR deal that we have completed recently. Also, for your convenience, we have created a YouTube video on the very subject.

So, what is BRR?

Okay, let’s answer that very question; we will need to get your head around what BRR is so you can see how you’re able to capitalise on the investment model.

Essentially, you’re probably already aware of what BRR is. Or at least a version of it. That’s if you’ve ever watched an episode of ‘Homes Under the Hammer’ OR if you’re aware of the common property model known as flipping, whereby you take a rundown property (just like the one that I will demonstrate in this article) and refurbish it. This is, after all, what every episode of Homes under the hammer centres around.

Now essentially, those two examples make up the first two parts of the BRR initialism.

So that’s the B, and the first R of BRR or, more specifically, Buy and Refurbish.

Now, unlike what they show you on TV when agents come to value the property for a suggested sale and just like flipping where you put the refurbished property back on the market to make your profit, instead, in the instance of a BRR, we simply remortgage the property at the higher value that we have been able to achieve due to our fantastic refurbishment and we keep the property within our portfolio.

And there, hidden somewhere in that last paragraph, we have the last R of the BRR, which is ‘Refinance’. Effectively, keeping the property and REMORTGAGING it rather than selling. Side note here, if you’ve ever heard of equity release, essentially, that’s what you’re doing at this stage.

Now, typically equity release comes in the from capital growth over time; for instance, you bought a property ten years ago for, let’s £100,000, and now it’s worth £150,000, meaning you can release the equity by remortgaging the property at a higher value. And all we’re doing here by employing the BRR model is speeding up that process by adding the value by utilising a refurbishment of some sort rather than waiting for capital growth to take effect. 

So there we have it BRR stands for ‘Buy, Refurbish and Refinance.’

Now there is a whole bunch of other initialisms like…

R B R R, which is Remote, Buy, Refurbish & Refinance. We have B R R R, which is Buy, Refurbish, Refinance & then Repeat and then we have BRF, which is Buy, Refurbish, and then Finance, in this instance, you purchased the property initially with cash, meaning we can’t RE-finance the property at this point but rather raise finance for the first time once the renovation is complete.

That said, they are all one and the same thing.

You’re simply buying a property at a price that reflects the amount of work required to bring it up to standard OR to add value in the case of building work, principally an extension. You then carry out that work and remortgage it at the higher value, given the fact that you will have added significant value to the property via your awesome refurbishment.

Ok, so how do we do this and how does it work financially or, more specifically, mathematically?

Well, to demonstrate this, I am going to have to bombard you with a whole bunch of figures here, but we will review them at the end of the article so that you can see the workings in all their glory. Hopefully, this will enable you to get your head wrapped around the true reflection of this model. It is important that you include ALL the figures in your calculation so that you can see the entire picture enabling you to calculate your ROI correctly.

Now it’s important to note that these figures aren’t here to amaze you or for any wow factor these are real figures that are going to reflect the property that I am demonstrating here.

There are many outcomes of the BRR property Model.

There are instances where you can release 100% of your initial capital invested, meaning you have none of your own money left in the deal at the point of refinancing. Effectively giving you a property FOR FREE, which would give you an INFINITE RETURN ON INVESTMENT.

There are even bigger BRR deals like commercial to residential or larger HMO conversions whereby you can pull 100% of your money back out plus a whole load of profit, meaning, again, you effectively own the property for free, but this time you make a tidy sum of profit for your troubles to boot.

However, the one I am going to demonstrate today, which is a genuine deal with the property we have just completed, is the more common model whereby you do leave a small portion of your capital in the deal, but that does mean you pull the larger portion of your money back out of the deal ready to put towards your next venture or as it’s known stretching or recycling your cash.

Let’s get to the maths.

We bought this house for £70,000. It does need quite a bit of work like A full new kitchen, a full new bathroom suite, some plastering work, a new boiler, carpets, painting, and a whole bunch of other smaller jobs like dome new doors and other minor repairs.

Now I have calculated (accurately) due to my experience that this will cost me around £12,500. And another side note here, guys, you don’t have to be an expert to calculate this since we do have a pretty useful ‘refurbishment calculator’ on our website FOR FREE, and I will place the link to this in the details below, or you can simply head over to our website and download that and a whole bunch of other stuff too.

So now we have the first two figures needed to evaluate the property’s suitability for a BRR, and that’s the Purchase price and the refurbishment cost.

The next thing we need to do, and we must be confident in our numbers here, is to determine what the sale price or what’s known as the done-up value (DUV) of the property would be once it’s refurbished.

In this instance, and according to the agents I have spoken with, coupled with my research on the recent sold prices or what we call the comparable sales ‘’or comps’’, furthered by Zoopla’s ‘high confidence’ valuation on the property, we have a post refurbishment value on this one of £105,000.

So In order to work out your ‘Cash in Vs. Cash out’, which is the whole idea of the BRR model, we need to run some more complex mathematics. And so that you don’t have to pause here to grab a pen, I have put the figures needed to work this out at the end of the article.  

Ok, so remember we had a purchase price of £70,000, meaning we loaned or leveraged at 75% loan to value, £52,500 from the mortgage company to purchase this property.

This means our contribution for our 25% deposit was £17,500; however, we then need to add to that our Stamp Duty Land Tax of £2100, our Broker and Solicitor Fees of £1350, as well as our Mortgage valuation fee, which was £350, and it gives us a subtotal of capital needed of £21,300.

Next, we need to add our £12,500 refurbishment cost to the mix, and that means our total Capital investment would be £33,800.

So, the property will value up at £105,000, meaning we can then leverage a new loan, again at a 75% Loan to value, and the result would be that we release £78,750. We obviously have to pay back the original mortgage from this new loan which, if you remember, was £52,500, but not demonstrated in our figures before, because it wasn’t an up-front cost but rather added to the original loan from the lender, we have our mortgage arrangement fee of £995 meaning our total redemption figure is actually £53,495.

Therefore £78,750 loaned to us from the new lender because of the higher valuation of the property pays back the £53,495 from our original loan, and that leaves us with a deficit or surplus of cash of £25,225 from the revaluation and the subsequent remortgage.

We now look back to our; Total Capital investment’, which, if you remember, was £33,800, and simply take the £25,255 surplus away from that because we now have that cash back in our bank account now.

And that leaves us with a mere £8,545 left or tied up in our deal.

That means, and this is purely coincidental, by the way, and not to be confused with any loan to value amounts, we have 75% of our initial capital back from this BRR deal and given that this property will rent out for around £650 per calendar month that leaves us with an ROI or return on investment of 51% and for clarity that’s using an interest only mortgage at a rate of 4.39% with Precise Mortgages.

So In essence, that is or was BRR and how it works. However, there are a few things to note before I leave you to digest it all.

1) The average time for a refurbishment like this is around 6-10 weeks, depending on contractors’ diaries.

2) In most cases, you can only apply for your remortgage on day one of 6 months after the initial purchase of the property since most lenders, NOT ALL, but most require you to own the property for six months before reapplying for finance. Now, I do know that Paragon is currently, and that’s at the time of writing, remortgaging property before this six-month wait period is up; in fact, they will do it on Day 1, so if you want your capital back quicker, mention this to your broker and see if they are still available.

Last side note here, guys, if you get in touch with us, we can put you in touch with an excellent ‘whole of market’ broker.

Ok, so number 3) The most important factors when determining the viability of your BRR deal are the refurbishment costs as well as the ‘Done Up Value’ of the property.

We can then try to maximise our cash back in the bank by negotiating a cheaper purchase price. And then, Obviously, every pound saved on the refurbishment or squeezed onto the revaluation is money back in your account, too, so do be diligent through the refurbishment process and confident in the done-up value (DUV) of the property.

4) The three best ways to find BRR deals are too.

ONE search Rightmove looking for properties that clearly require lots of remedial work.
TWO By approaching vendors directly in what is called Direct to Vendor purchasing.
And THREE by looking at utilising sourcing companies (just be careful enough to carry out thorough due diligence with the latter)  

5) Financing BRRs can be done using other people’s money, so you don’t have to use your own capital to get started, especially in the more favourable instances when you pull 100% of your cash back out of the deal, you can then refinance at the higher price using a standard mortgage lender and pay your ‘angel investor’ back.

Now, all of the above points are complex, and further explanation is absolutely required, so they will be covered in other videos and articles further down the line.

So that’s it, no dream selling BS, no hype to make you think you’re going to quit your job next week, work a few hours a month and buy a Ferrari; it’s just good honest education.

It’s now up to you to decide if this thing of ours is right for you.

Remember to head over to our YouTube Channel  to see this in video format as well as to see all of our other free resources and paid-for training courses.

And that was BRR, what is it, and how does it work?  Fully Answered for you!!

As promised, The FULL BRR Figures;

Original Purchase Costs

After your ‘Expert’ Refurbishment 😊

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