Buy-Refurbish-Refinance is the practice of buying a property using hard money financing, fixing it up, and then refinancing it with a conventional mortgage loan.
You may have heard of hard money loans or cash-out refinances, but what exactly is BRR?
BRR is a type of financing that allows you to purchase a property using hard money loans and then refinance the property with a conventional mortgage loan in order to generate enough cash flow to pay back your hard money lender.
A conventional mortgage is what most people think of when they hear the word “mortgage”; this is a long-term loan where you borrow money from a bank or other lender, make monthly payments on it for years on end, and then eventually own your home outright once all payments are complete.
The reason why many people choose BRR over one of these options is because it allows them to get into more expensive homes than they otherwise could. With BRRs, there are no limitations on how much money you can borrow as long as it covers all closing costs associated with buying real estate properties (which includes things like attorney fees and taxes).
The reason why you would want to refinance your BRR is that it will allow you to get out of the hole faster. So, if you have a property that is worth £500K and a loan for £300K, then once all payments are complete, you will still owe the lender £200K.
If you then refinance that £200K loan, you are able to pay off your original lender and get out of debt faster.
In many cases, BRR is the only way to buy a property where the seller doesn’t accept owner financing.
BRR is a way to buy property with no cash and no money down. It’s also the only way to buy property where the seller doesn’t accept owner financing, which is often the case in today’s market.
Many homeowners aren’t interested in selling their homes and don’t want to deal with all of the paperwork that goes along with it. Some sellers just want out of their home because they’re tired of living there or they’re downsizing. Others may have fallen on hard times and need quick cash; they’ll sell their house, but not at a discount price. In all these situations and more, BRR can provide an exit strategy for homeowners who don’t want or need to take on any risk or liability when selling their home.
The reason why BRR works is because appraisers will consider the value of the home after improvements are made to evaluate how much you can borrow on your next loan.
Appraisers will consider the value of the home after improvements are made to evaluate how much you can borrow on your next loan.
This means that if you purchase a foreclosure and remodel it, when you go to refinance the property, there may be more money available for your loan than if you had bought it “as-is”. If this is true for your situation, then BRR might be something worth looking into!
However, BRR isn’t for everyone.
If this strategy appeals to you but seems too complex or risky for whatever reason (or if you’re just not sure), then maybe another approach would work better instead. Whatever route makes sense for YOU – whether it’s buying distressed properties and fixing them up yourself or working with someone else who does so – make sure there’s enough profit in each deal so that after paying all expenses related to doing business (and making an allowance for some unforeseen costs), we’ll still end up seeing some profits left over at bottom line at year end.
In order to pull off a successful BRR, you’ll need to take into account how much it costs to renovate the property and what your total carrying costs will be.
In order to pull off a successful BRR, you’ll need to take into account how much it costs to renovate the property and what your total carrying costs will be.
- How much will it cost to fix up the property?
- How much are your maintenance costs going to be?
- What’s the maximum amount of money you can spend on this house right now?
- How much money can I borrow in order to do this renovation?
Be prepared for the eventuality that the appraisal comes in below expectations.
You’ll want to be prepared for the eventuality that the appraisal comes in below expectations. This can happen for a variety of reasons, but it’s something you should always be prepared for when buying a property that needs work.
If your purchase price is based on an appraisal higher than what you paid, then congratulations—you have more money and can use it to improve the property by making improvements or repairs where necessary.
For example, if you borrow £100k at 7.5% on a one-year term with interest only payments, your monthly payments will be roughly £625.
If you’re looking at buy-refurbish-refinance as a way to purchase properties, it’s important to know the costs of each type of loan, and how much interest will be added on top. For example, if you borrow £100k at 7.5% on a one year term with interest only payments, your monthly payments will be roughly £625. If you want to refinance that loan into a 30 year fixed rate loan (at 6%) you’ll pay off the principal over 6 years instead of 1 year—but your monthly payment stays about the same (£624).
Now let’s say instead of getting an interest only loan for 1 year, we go ahead and buy our fixer upper house with 25% cash down so that we can get an 80/10/10 or 90/5/5 conventional mortgage (depending on whether or not there is seller financing involved). In this case our total cost is going to be around £134k including closing costs when we sell after 2 years.
The ultimate goal of BRR is to make your properties cash flow positive and build equity from rental increases and home appreciation.
You should also make your properties cash flow positive and build equity from rental increases and home appreciation. This means that you’ll be able to keep the properties for longer, thus reducing your risk exposure.
If you’re thinking about becoming a landlord, it’s important to know what BRR is so that you can decide if this strategy is right for you.
It’s possible to buy real estate with no money down (almost), but you have to know what you’re doing.
You can use BRR to buy real estate with no money down. This is a powerful strategy, and it’s one of the reasons why I’ve recently been able to purchase more than 25 properties in less than three years.
However, there are some important considerations when using BRR:
You need cash for closing costs (down payment and closing costs)
You have to be willing and able to work on your deals as they go through the repair/refinance process (which may take several months)
We hope this article has given you some insight into the practice of Buy-Refurbish-Refinance. The purpose of BRR is to help people who are looking for an alternative way to get into real estate with no money down, but it’s not always a perfect solution.
You need to be willing to take on some risk and do your research before making any decisions about this type of financing.
If this is something you’d like to get into, you can book a free strategic session with me by clicking here!