The BRRR strategy – Buy, Refurbish, Rent, Refinance – is a popular method for property investment. But why?

The process:

Buy: Purchase a property, often distressed, at as low below average market value in the area as possible.

Refurbish: Renovate the property to increase its capital value and rental potential (this is also known as “forced appreciation” as opposed to capital appreciation.

Rent: Lease the property to generate steady rental income.

Refinance: Refinance the mortgage based on the improved property value, pulling out cash to reinvest in more properties. Because of mortgaging conventions, this is often done several months after the original purchase, but there are ways to do it faster. It is sometimes possible to get all, or most of your original capital out.

Benefits:

• Capital Recycling: Allows investors to reuse the same capital pot from refinanced equity to buy additional properties, accelerating portfolio growth.
• Increased Property Value: Renovations increase property value, which can lead to higher rents and improved cash flow.
• Tax Benefits: Mortgage interest is tax-deductible, and revenue costs can be offset from rental income (but capital expenditure can’t).

Pros:

• Scalability: Efficiently grows a property portfolio without continuously needing new capital. The “snowball effect”.
• Higher Returns: Potential for significant returns through property value appreciation and rental income.
• Diversification: Reduces risk by diversifying investments across multiple properties.

Cons:

• High Initial Investment: Requires substantial upfront capital for purchase and renovations.
• Market Risk: Property values may not appreciate as expected, affecting refinancing potential. Knowing roughly what the market may do over the next 6-12 months is important.
• Management Intensity: Requires active management, from overseeing renovations to handling tenants. Not the best strategy if you are in a busy day-job – unless you outsource it to someone else.

Married2Property are a family-run property company that aims to create social good through property.

These articles are written by Darren de Wal based on his many years of experience as an active Property Investor since his first investment property in 2012 and 16 years getting to a senior leadership position as an Officer in the Royal Air Force. They are for the benefit of those with a general interest in Property, as well as those wishing to start out investing themselves.