The BRRRR method, which is buy, refurbish, rent, refinance and repeat what is the breath strategy all about? I'm going to explain it for you and set out how to make it work in 2021, [, Music ]. So my name is Ranjan. Badacharya I've been a property investor for 30 years. I started out using the BRRRR method, and many successful investors have basically made their careers on successfully applying this strategy. You may have seen me on the hit sky, tv-series, property elevator or you may have attended one of our property networking events in central London, but if you're new to this channel make sure you subscribe and hit that bell icon, we put out new content each And every week, and it's all dedicated to keeping you on top of your property investing game.
So what is all about?
Well, it's the strategy by which I got started in the property and most successful investors uh got started in property. What it allows you to do is it allows you to keep on going, because the thing with investing in property is that it costs money. You need a huge amount of cash to keep doing deal after deal after deal, but using the birth strategy. If you do it right, you can keep going on forever. Now bro works in any market in any market conditions, but there are tweaks that you have to apply to it, depending on where you are in the property market cycle. In this video, I'm going to explain and debunk blur specifically for applying it in the uk and in 2021. So let's dive straight in [, Music ], so the brewer method then buy refurbish rent refinance. Repeat, I'm going to summarize it for you and then I'm going to break it down step by step uh in terms of the individual steps and how to apply in 2021.
Buy well really that's about buying your property below market value. You'Ve, it only works. If you buy property for less than it's currently worth, then it's about refurbishing. The objective there is to refurbish so that you maximize your rental income. That'S the objective of the refurbished step! Then, of course, you want to rent it out. You want to get tenants in, and the objective of that is to make sure you start generating cash flow.
Then you're looking to refinance the objective. There is to make sure that you pretty much get most of your money back out of the deal, because if you don't, then it's difficult to go again and buy the next property. The only sustainable way of keeping on going in property is to implement this sort of bruh strategy, because if you have to leave money or too much money in each deal that you do, then basically you've only got a finite pot. And sooner or later you run out of money, so hence the refinancing objective is to pull out most or all of the money that you'd invested in the deal. So you've got your cash pot back and you're good to go again. In other words, repeat the whole thing again now: let's have a look at buy now in today's market and the market you'll face in 2021, you've got to focus on buying.
Well, as Warren Buffett says, you make your money when you buy not when you sell and that's more important in the in the market in 2021 than ever before. I know we we're experiencing a little bit of a mini boom in property right now, but uh in 2021, and we're likely to see things plateau for a while once unemployment and all of that starts to kick in i've done other videos on that subject. I'll put some links in the description below now. I'Ve got a simple graph here. It really shows uh property price inflation over time and i've got time and value axes if you like, and then i've got the market value today of the property now you're.
Looking at a property, all property has a market value and you ascertain the market value based on comparables. If you're, looking at a three-bedroom, semi you'll be able to find realistic. Comparables of what similar like-for-like three-bedroom semis have sold for uh within a 12-month period. Now, brr only works if you do not buy property at market value, whatever the market value is of the property, be residential or commercial, it doesn't matter. What you've got to do is buy it at under market value or BVM, so to buy property below market value. What are you looking for is motivated sellers who are selling distressed properties. Now i've done a whole video on this and how to apply that particular strategy in 2021. Again, we'll put links in the description below for further watching now later on in this video i'll share with you exactly how much below market value you need to be buying property for in order to do brr and get all your money out of the deal at The end, i hope, you're finding this video useful, if you make sure you smash that, like button it'll mean that youtube will share this with more people like you, let's look at the refurbished part of the BRRRR method. Now i mentioned when we talked about buy, you need to know the market value of the property that you're looking to buy based on comparables. But what you'll actually find is that in a particular location or in a particular street, there is actually a range of comparable values. You'Ll find that there's a lower end and there's a higher-end and there's normally a ceiling price beyond which a property um. It will not be worth anymore in a given street. What you need to know is for the property that you're buying. What is what is that sealing price? It doesn't matter, if you add in a swimming pool a jacuzzi or whatever you like in that particular street.
No house has ever sold for more than 250 000 pounds. If that's the case, then that is your ceiling price. So, if you're doing any refurbishment whatsoever, there is no point in doing anything where you are expecting a value beyond this ceiling price, particularly in a market like 2021
Now, when the market is going gangbusters and it's a boom type time, then you can possibly get away with it, because what you tend to find is that property prices are growing within a 12 month period in a boom time. So if you buy under market value - and you do a little bit of refurb and your refurb project takes six months or eight months and it's simply the time it takes for the refurb to happen - has actually made you some sort of profit um, but in in Particular in 2021 you've got to be very careful of this ceiling price that is the maximum you're going to get out of it. Now in the in the brewer method, uh, we are looking at refurbishing property to keep them for long-term rental. Now that's a completely different refurbishment and renovation strategy to doing uh renovation to sell on or flip on uh into the market. The renovate to let method, if you like, is far more about optimizing, the rental cash flow of the property, as opposed to when you flip it. Your renovation is focused around optimizing, the end value, so this is important because when you do the refinance part of it, you want to refinance the property not based on the price you paid for it down here, but you want to refinance it based on the um. The renovated price, which hopefully is the ceiling price for that property in that particular road. Now this is one area where a lot of people get confused. Now there are two elements of uplift which you can create in a property that you buy. There'S this bit here, which is the the pound that you're making by buying well by buying below market value and there's also the value that you create by refurbishing. Well now many people get this confused when you buy a property below market value, remember you're, buying it below the market value of its current condition. So if the property is is a little bit dilapidated, it needs a new kitchen needs a new bathroom and all of that needs need to do windows or whatever it needs. You know, then, you are comparing the market value of that property is discounted from the from the ceiling price of property in a1 condition in that street. So what you're looking at doing is assessing the property you're buying, which may be slightly distressed. It may be needing of repair works and the likes, but you're assessing it based on its market value in that dilapidated condition, and then you are making some uplift based on adding value to it by doing some works to the property. Now, when you get this total uplift in value to the ceiling price, that uplift is made up of added value through renovation and um purchasing.
Well, what you've got to be absolutely clear about is how much money or how much profit you're making from that deal by buying well and how much is actually from refurbishment now in 2021, you've got to be very careful on your refurbishment budget you're, not going to Add massive value simply by repainting a place and putting a new bathroom suite in and having mushroom colored walls and yellow fluffy cushions. That is not the market we're in in 2021. As a rough rule of thumb, if you're spending a pound on your works, then you will generate two pounds worth of value as long as, of course, that value doesn't take you above the ceiling price for that property in that street. Now, let's have a look at the different things that you can do when you refurbish a property, be it residential or commercial, it doesn't matter. There are basically four types of refurbishment or renovation works. You can carry out I'm going to kind of put them out on this chart here and explain which ones are the right ones to do, or the best ones to focus on in 2021. So you've got some refurbishments which are more expensive than others, um so high to low cost and some which will take you um, greater or lesser time to actually do now, the one that is the lowest cost and the uh lowest time uh in terms of effort And gives you maximum um bang for buck is to is what i call repair and fix so what's wrong with the property that prevents it from being rented out and cash flowing as quickly as possible. So it might be that the heating needs replacing. It might be. There'S some dodgy windows in there might mean that the electric fuse box is old, it's essential repair, type of stuff to get the property uh ready for rental.
The second area i focus on is curb appeal, enhancing, curb appeal. So when you walk up to the entrance of the property, what does it look like? First impressions count. First, impressions count for valuers when you subsequently refinance the property, we'll talk about that a little bit later, but often improving. The curb appeal of a property is one of these things: that's relatively low in terms of cost and quick in terms of time, then you start getting to the more complex areas of renovations and the next complex area, if you like, is what i call spatial improvement And that's to do with improving the layout.
So a typical example of this is let's say: you've got a very large lounge and a separate kitchen. A classic textbook thing to do to optimize rental income is to put the kitchen basically into the lounge, make it into an open plan, kitchen lounge and then make the kitchen into an extra bedroom. So that's playing around with the spatial layout of the property to optimize. It for rental. Another example of this is if you've got a very oversized bedroom with two windows.
For example, you can you can in many cases chop the bedroom in half with a partition wall, etc, to increase the bedroom count in that property and the fourth most expensive area to um.
To think about is add space now that's to do with extensions, whether it's going into the loft you're doing a side extension rear extension basement whatever you're adding space. So that is where you start to go up this ladder of expense and time it takes to do for 2021 when you're doing bro. You want to focus your refurbishment activity here. You want to do repair and fix to get the property ready for rental, and you want to do some simple, curb appeal type of things, because that way: you're going to get the property on the rental market as quickly as possible by getting it on the rental Market as quickly as possible, that means it's cash flowing and when it's cash flow, you can refinance it, pull your money out and you're good to go on the next one, because the idea of brr in a market like we've got in 2021 is to do as
Many of these as possible in a quick time as possible because you've got a golden opportunity over the next few years to require some serious, real estate stock. What you don't want to be doing is spending years on one particular property project, because you've decided to add extensions and do all this other stuff, which is very time-consuming. Now, here's a handy tip for you in times like this. You really want to be acquired quickly and, as i said, concentrating on these areas of refurbishment, but these are always things you can come back to. You know when the market's booming again, you know you may not necessarily want to buy. You may think the markets topped out these are times when you can go back to some of the properties that you've bought when the going was really really good and look to spend a little bit of time, uh on looking at these sort of strategies. Of course, doing this, these sort of strategies work best when you've owned the properties for a few years and benefited from some capital appreciation in them, so that these sort of renovations are easier to finance.
Of course, i should say that there are some circumstances where i would do this. I would do this in the spatial improvement um as part of getting my property cash flow positive. Now, if the spatial improvement is going to lead, lead or result in a greater cash flow rental cash flow, then it's definitely worth doing it's where spatial improvement involves things like RICS, if you have to use an rsj, which is a massive steel beam structural improvements to The property, then it's pretty much in the more time and more expense category. If your spatial improvement doesn't involve structurally altering the property, then i would consider doing it as part of these sort of quick in and out works, provided it's giving you a rental cash flow. Uplift, so next up, we want to rent the thing out. We want to spin out the refurbishments as quickly as possible, get some cash to get some tenants in there and generate some rental cash flow because you want to make you want to generate as much rental cash flow as possible because remember when you get onto the Refinance part of it, your mortgage, that you're going to get is ultimately going to be determined by the amount of rent that you're generating on that property.
So hence all your refurbishment activity is focused on that one thing: uh optimizing the rent uh to be the maximum possible, which then optimizes the money that you can subsequently pull out. Um from the mortgage. So have you done the method? Tell me about it in the comments below I'd love, to hear your feedback, particularly if you're doing bro right now. Now, let's look at refinance and also finance in general, if you like. Now, when you buy the property in the first place, you're typically buying it, some people are lucky enough to buy it with cash. They have their own cash pot, so they put the money in they buy the property outline with cash.
They do some renovations, they refinance it, get their cash pot back and they're good to go again. Other people do it with bridging finance because you can buy the property initially using bridging finance. Do the works, um reef and then refinance it onto a long-term mortgage once the property is let out. You do have to remember, though, that most mortgage companies require you to own the property for a minimum period of six months before you're allowed to refinance it onto a long-term mortgage. So you need to take that into account when you work out your bridging costs and the renovation time period, and all of that now, when you do your refinance, you're, typically going to get a 75 loan to value mortgage. In other words, the valuer will come around and value the property, hopefully at that, because you have renovated it to really get the ceiling price for that particular property in that particular location. Now, as i said, the mortgage company will give you 75 of that value. Now the other 25 is equity that you need to have the ideal that you're aiming for with bruh is to get as much of that 25 equity from the deal itself and the only two places that equity can come from it's here from buying below market value. The discount to market value that you bought the property from and any value that you've added through refurbishment, that's where your equity comes from, and if that is equivalent to what the bank requires, then you've basically pulled your money out of the deal.
So let me just give you some simple rules of thumb to help you out. So when you're doing your refurb, your refurb budget, you shouldn't, spend, don't spend more than 10 of you of the purchase price. Whatever you buy, the thing for don't spend more than ten per cent on doing the thing up, allow roughly five per cent of the purchase price for costs; legal costs fees this that the other and by fees i don't mean financing fees, which you can often add to the Loan but things like solicitor fees, professional fees that you may have to pay. So when you take into account that the bank requires you to have 25 equity in the deal, when you take into account that you've got to stick up about 10 to refurbish 5 costs, and all of that, when you factor that all in as a rough rule Of thumb, to help you guys out when you are looking at a property, if you want to brew it and get all your money out, you've got to be buying it at anywhere between 35 and 40 below market value. Now you can do that. People do that, but these own, these deals only happen from motivated sellers. Um are abound all over the place in times when there's a little bit of distress in 2021. Of course, we've got um unemployment increasing and follow schemes ending.
There are a lot of things coming which are pointing to some signs in the economy that they're going to be a lot of distressed property sales out there in the market. Now the br our ideal is to pull all your money out in every deal. But if you just have, if you just fall short of this a little bit, you may find that you've got a deal um and you've only got about five per cent invested in it. Um, that's still not very bad at all. It means you have slightly less cash pot in the future uh to go on, but it's still a good deal. So what so? What i recommend to people is look at brr as doing things with no money left in as it were. In other words, you pull out all your all your money from the deal after you've done it, but that is ideal and in my experience maybe one in six one in seven deals actually turn out like that. Most deals turn out to be low money. Less left in the deal, in other words when he refinanced out you're, typically got between five and ten percent tied up in the deal. At the end, you see one of the most fantastic measures in uh real estate. Investing to use is your return on cash.
Your cash on cash return, if you like now think about it. If you bought property 40 below market value and you've applied everything in this video on a deal and you've refinanced and you've got none, and you basically got all your money out of the deal. The amount of cash you have invested in the deal is zero and the return your return on that cash is literally infinite and that pretty much is the magic money tree of property, investing the return. The annual return you make from renting the property out, in other words, the positive cash flow once you've taken out, taking your rent and subtracted your mortgage costs and all the other costs of owning it and that rental profit cash cash flow that you generate per annum Is a return that you're making on no money tied up in the deal which is infinite now? An infinite return is, of course, the holy grail of poorer investing. Now, a lot of your typical deals will involve tying up some money in each deal. Maybe five? Ten per cent of the total uh you've got tied up in it, but what you're going to look at is for the money that you're tying up in the deal. What'S your return now, my golden rule of thumb is that rate of return on the cash you've got tied up in the deal is more than 25. That'S pretty much more than you'll get anywhere else, and that's probably worth trying up that money in that particular deal. So the repeat part of it basically in the market that you're going to face in 2021, get in and out of the deal as quickly as possible and you're good to go again and do as many as you can in the short period of opportunity. That we'll have over the next few years, but one word of caution is don't go on doing this forever. I would do a maximum of uh 10 deals using the brr strategy.
After that, i would think about doing b, r, oops r, basically killing one of the r's. Now, the r that we're going to kill is the financing refinancing r, and let me explain why, because b and fours is great for building your portfolio when you are starting out. But what you've got to realize is the more properties you build in this way. When you get to a portfolio of 10 you're carrying a rather large amount of debt uh on the value of those assets, and particularly if you're, investing in low-value areas that can start to affect the risk profile of your whole property business. As you grow your portfolio, you really don't want to be maxed out at 75 loans to value borrowing across your entire portfolio, because if they're any turns in the market or anything that happens, then your whole ship can easily be sunk, so build up using b and 4Rs, when you get to 10, have a think about whether you actually need to do that refinance element when you've rented out think of it.
This way, if you built up 10 properties and they're all cash flowing positive you're, generating a reasonable amount of cash flow from the portfolio that you've built using b and the 4rs on the 11th one. You don't necessarily need to refinance if you have bought well. In other words, below market value, you have refurbed well and added some value to it, and then you rent out if you don't bother refinancing your debt, will be based on the lower original purchase price. That means you'll be making even more rental cash flow. It's very important to look at rental cash flow as part of your overall property investing gain, because, yes, you can refinance and borrow more, but remember. Borrowing always has to be paid back. The pied piper will call one day and ask for their money back rental cash flow that you generate is yours to keep. You don't have to give that back to anyone, it's your earned income, so the blur method has been around for donkey's years ever since real estate, uh became a thing if you like, and it is the staple strategy of which explains how people have built uh their
Property portfolios and property empires, if you like, let me know what you think of this video in the comments below this applies to both residential and commercial property. I do a lot of training on commercial property and how you can apply this method as well. In the commercial real estate space, of course, there's a whole bunch of opportunities unfolding over the next few years. In that arena, I do some free training as well. It'S 90 minutes of free training. You can register for that at uh propertyhyphenworkshop.com. The links are below as well so uh make sure you subscribed by the way and see you guys in the next video
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