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The BRRRR strategy, an acronym for Buy, Renovate, Refinance, Rent, and Reclaim, is gaining traction among savvy property investors. It focuses on identifying properties in a unique “Goldilocks zone” – not too dilapidated to be attractive to builder developers but not in good enough condition to appeal to owner-occupiers unwilling to undertake renovations. 

The Goldilocks Zone of Properties:

Properties in this niche category often escape the radar of typical buyers. They aren’t in prime condition, deterring potential owner-occupiers. At the same time, they aren’t dilapidated enough to attract developers looking for a complete overhaul. This relative lack of competition often means these properties come at a discount or present excellent value, especially for buy-to-let investments.

Multiple Benefits of the BRRRR Strategy:

  1. Cost-Efficiency: Due to reduced competition, these properties often have a lower purchase cost.
  2. Value Appreciation: Post-renovation, the property’s value typically sees a significant uptick.
  3. Stamp Duty Reclaim: The combination of the Finance Act 2003 and the PN Bewley vs. HMRC case offers an opportunity. If a property is deemed uninhabitable at the time of purchase, it shouldn’t be classified as residential for stamp duty purposes. This opens the door for reclaiming overpaid stamp duty.
  4. Refinancing Advantages: For those looking to refinance, the reclaimed stamp duty can substantially reduce the cash left in the property post-refinancing.

Identifying Suitable Properties:

Properties ideal for the BRRRR strategy often exhibit certain characteristics:

– They haven’t undergone renovations in the past two decades.

– Outdated kitchens in need of modernization.

– Central heating systems that require replacement.

– Visible damp issues, evident from peeling wallpapers or bubbling paint.

– Presence of toxic mould.

– Bathrooms that are outdated and need an overhaul.

– Overgrown rear gardens with unchecked vegetation.

Habitability – A Key Consideration:

A straightforward litmus test for determining a property’s suitability for a stamp duty reclaim revolves around its habitability. Would a reasonable person be willing to rent the property in its current state? If the answer is no, there’s a strong case for a stamp duty reclaim.

 

In Conclusion:

The BRRRR strategy offers property investors a structured approach to maximise returns. By targeting properties in the Goldilocks zone, investors can benefit from reduced purchase costs, value appreciation post-renovation, and the potential to reclaim overpaid stamp duty. It’s a comprehensive strategy that, when executed well, can lead to significant financial gains and a robust property portfolio.