So how do property investors own double figure if not triple figure property portfolios? Where does all the money come from? How do they do it?
Well, most of the time the money is recycled using BRR Strategy. I would say 90% of professional real estate investors use this strategy, here is how it works:
BUY - Buy a property at ‘Below Market Value’ (BMV), usually this is due to a motivated seller wanting to sell quickly or because there is an issue with the property that needs resolving.
For example, let’s say a property would normally be worth £60,000 but the seller needed cash fast so accepted £50,000 as the purchase price.
REFURBISH - Through refurbishment we add value to the property, this could be a traditional refurbishment e.g. replacing bathrooms & kitchens, rewiring, replacing the boiler and heating system, full decoration and new carpets etc. Or it could also be something more substantial e.g. loft conversion, or an extension to create additional space. Or it could be more creative e.g. changing its use from Commercial to Residential.
In our example let’s say we spend £15,000 refurbishing and adding value to the property. Meaning a total spend so far of £65,000
REFINANCE - After refurbishment we refinance the property through a mortgage provider, they value the property at £80,000, and lend 75% of this amount which is £60,000. Meaning we have covered the majority of our costs leaving just £5,000 ‘in the property’.
Once the refurbishment is done we will of course rent it out:
RENT - The £60,000 mortgage we have at a realistic interest rate of say 4% means a monthly payment of £200 Per Month. The mortgage payment is covered by the £500 PCM rent leaving a balance of £300. From this we allow £50 Management Fees and £50 Maintenance and are left with £200 PCM cashflow.
FINAL THOUGHT(S)
We own the property but have invested only £5000 in to it
We have a monthly net cashflow of £200 PCM
What’s not to like about this strategy?
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