The BRRRR Method & Why You Should Consider It in Cape Town
Category Buying Advice
The BRRRR method allows you to invest in Cape Town property without needing millions in the bank, using other people's money. When done correctly, with the right advice, it's a fantastic method of leveraging other people's money to create wealth. It's perfect for those not afraid to put in the hard work and grow a property portfolio quickly.
What Is the BRRRR Method?
The BRRRR method is a 5-step real estate investment strategy. The 5 steps of the BRRRR method are Buy, Rehab, Rent, Refinance, and Repeat.
1. Buy
Buying is the most crucial step in the BRRRR method. Afterall, the property's location is the only thing you can't change... You should ideally be looking for distressed properties - houses and sectional title units in a state of disrepair, or are bank mandated.
After you've identified a property like this, estimate how much money (and time) would be required for the rehab step and add that to your best offer bid. The cost of the property plus the cost of the rehabilitation is what's called the After Repair Value (ARV) and it is going to be the true capital outlay for your investment.
BRRRR Method Top Tip: This initial cash outlay should be paid for using a hard cash loan. This can be acquired from reputable financial services providers like banks (and will depend on your credit score) or a rich uncle if you're lucky enough to have one.
2. Rehab
Much like traditional renovating for profit, the rehabilitation step in the BRRRR method involves bringing the distressed property up to the standard of its area. First and foremost, it's about improving a property's value by more than it cost you to renovate. The key is to identify the best return on investment areas of improvement. Those areas are the kitchen, the bathroom, and where possible adding an additional bedroom. When done strategically, the rehab step of the BRRRR method will leave your property's value will be higher than the ARV cost!
BRRRR Method Top Tip: Never pay more than 70% of the ARV for the purchasing of the property. Take for example a property with an ARV of R1,000,000 - never spend more than R700,000 on the purchase of this property or you can run the risk of losing money!
3. Rent
Finding the right tenant is one of the trickiest steps in the BRRRR method. It involves finding someone with a history of paying rent on time, a good credit rating, positive references from previous landlords, a steady income, and a clean criminal record. Thankfully, this step is the easiest to completely automate!
BRRRR Method Top Tip: Use the services of the leading rental management company to automate your rental property passive income generation. They will find the right tenant, handle rent collection, and perform routine inspections so that you can continue to focus on expanding your empire.
4. Refinance
Refinancing is a way to access the equity of your home loan to use towards purchasing additional property. According to Nicole Adams, expert Bond Advisor at BetterBond, the major banks in South Africa offer refinancing of paid up properties with cash-out options. That means, because you've paid in full for your now rehabilitated BRRRR investment property with the hard-cash loan the bank will gladly refinance so long as all of your utilities, rates & taxes are not in arrears. With the cash you get out from the refinanced bond, you can pay off the hard-cash loan in full and if you've done everything right you'll have plenty leftover to put down on the next property.
BRRRR Method Top Tip: BetterBond is a 100% free bond origination service. They can help you get the lowest possible interest rate on your bond and help you select the most beneficial refinancing solution to speed up your property portfolio growth.
5. Repeat
Rinse and repeat! Use the cash you have leftover from the previous property and get another hard-cash loan. Buy a distressed property, rehabilitate it, repair it, and rent it out. Using this tried and tested method of property investment you can rapidly use other people's money to create lasting wealth in the property market.
The BRRRR Method in Cape Town
Cape Town is a fantastic place to use the BRRRR method to begin or expand your property portfolio. With inflation in South Africa regularly forecasted above 4.5% - investing in Cape Town real estate by building a property portfolio using the BRRRR method is one of the best ways to hedge. Rental income tied to Consumer Price Index (CPI) can be off-set against a fixed interest rate bond. Additionally, you can partner up with block-specialist real estate agent to help you manage all of your rentals.
Author: Paul Wasson