The BRRRR (Buy, Refurbish, Rent, Refinance and Repeat) property investment strategy has been a popular method used by many worldwide to build a portfolio of investment properties, but can it be realistically used in Ireland?
The key benefit of this BRRRR method is that it allows you to optimise your cash flows. Once you have improved your somewhat dilapidated property and rented it out you can then release some equity to enable you to invest in your next property. Currently the loan to value ratio for buy to let properties in Ireland are 70%. This will therefore be the maximum equity that you will be able to release from the property.
This cash will then enable you to scale at your own pace and build the value of your portfolio while giving you consistent positive cash flows.
What Could Go Wrong?
For this method to work and be profitable then you will need to have strong control on costs and budgets as margins will be tight. Often people are not aware of all the additional costs that you might encounter when buying a property such as Stamp Duty, Insurance, local property tax, rental income tax, and, engineer/surveyor costs.
Another variable that is hard to manage is the cost of the refurbishment, the price of materials such as timber, copper, etc has been rapidly increasing of late. This will be something you have to build into your plans, it’s necessary to be prepared for overruns.
You may also run into problems with the property that you could not have foreseen at the time of purchase. As soon as you go knocking walls and pulling up floor board its only a matter of time before you find something that needs to be fixed that you hadn’t planned for.
Something else that can cause you issues is how easy it is or not to rent out the property. The current market conditions are favourable for landlords with such a shortage of properties on the market available for rent. It may remain like this for some time but you would need to consider how periods of vacancy could affect the growth of your portfolio.
In this video, Shane from Fleming Real Estate goes through some great practical examples of the BRRRR real estate investment method in Ireland. This video is well worth checking out if you are interested in seeing some practical tips.
Let’s put some figures on an example and see how it looks in reality:
|€16,800 €1,400 per month
|Property Revalued to
|Refinance and claim 70% – Loan
Monthly payments on the mortgage of €154,000 (Interest rate of 6% over 25 years) would be €992 and you would be pulling in €1,400 from rent. This leaves you with a net positive cash flow of €408 a month. Overall your cash position would be €26,000 from when you first started but you have €154,000 now to go and repeat the process again.
At €408 p/m, it is going to take you a while to build up cash over time and there is a high risk of this cash flow being eaten away through repairs, insurance, taxes, etc. Therefore ideally, you would like to have as big a gap as possible between your rent and mortgage repayment to give yourself leeway for the unforeseeable.
Figures will greatly vary depending on where you are based in the country also, the market in Dublin and a place like Waterford are like polar opposites.
Disclaimer: This blog post is for information and educational purposes only and should not be construed as financial advice.