BRRRR at Auction: A Realistic Worked Example

The BRRRR strategy – Buy, Rehab, Rent, Refinance, Repeat – is a popular method for property investors aiming to build a portfolio with minimal capital tied up long-term. But can it work with auction properties? The quick answer is yes, but it requires meticulous planning, realistic budgeting, and a solid understanding of the auction process.

At Below Hammer, we see hundreds of auction lots each week. This week alone, our model flagged 472 "Best Buy" lots – houses under £300k with an estimated value at least 1.5 times their guide price. The average guide price was £101,160, with a median modelled upside of 149%. Popular areas include Sheffield (S), London (E), Newcastle (NE), Bristol (SW), and Swindon (SN).

Let's walk through a hypothetical, yet realistic, BRRRR scenario using a property you might find at auction.

The Scenario: A Discounted Two-Bedroom Terraced House

Imagine we've identified a two-bedroom terraced house in a regeneration area within the Sheffield (S) postcode area. It's unmodernised, needs a new kitchen, bathroom, and redecoration throughout, and potentially some minor structural work (e.g., damp proofing).

Auction Guide Price: £70,000
Market Value (as-is): £85,000
Estimated Open Market Value (after works): £140,000
Potential Rental Income: £750 per month (£9,000 per year)

This property fits the "Best Buy" criteria: the estimated open market value (£140k) is significantly higher than the guide price, suggesting good potential for an uplift. The key is to acquire it at a price that leaves ample room for renovation costs and still provides a healthy buffer for the refinance.

Step 1: The Buy – Acquiring the Property

This is where auction psychology can be a challenge. Sticking to your numbers is paramount. For this BRRRR, let's assume our maximum purchase price, factoring in all costs, is £95,000.

Purchase Price: £95,000
Buyer's Premium/Auctioneer's Fee: Typically 0.5% - 2% + VAT. Let's estimate 1.5% + VAT = £1,425 + £285 = £1,710
Stamp Duty Land Tax (SDLT): For buy-to-let properties in England and Northern Ireland, this is 3% above the standard rates. Assuming a property value of £95,000:
- Standard rate on first £250,000: 0%
- Additional 3% on £95,000: £2,850
Legal Fees (including search fees): £1,500
Survey/Valuation: £500

Total Initial Acquisition Costs: £95,000 + £1,710 + £2,850 + £1,500 + £500 = £101,560

This is the cash outlay required to secure the property. Crucially, remember that auction properties often require a 10% deposit on the day, with the balance due within 28 days. Ensure you have access to funds for this. For the full purchase price, you'll likely need short-term auction finance (see our guide on Auction Finance UK).

Step 2: The Rehab – Renovation Costs

This is where accurate quoting and contingency planning are vital. Based on our initial assessment:

Kitchen: £5,000 (supply and fit)
Bathroom: £3,500 (supply and fit)
Redecoration (paint, carpet): £2,500
Damp proofing and minor repairs: £2,000
Contingency (15-20%): £2,000

Total Renovation Costs: £15,000

These costs are estimates. Getting detailed quotes before the auction is ideal, but often not feasible. A thorough post-auction inspection is essential to firm up these figures.

Step 3: The Rent – Let the Property

Once renovations are complete, the property is ready to be let.

Monthly Rent: £750
Annual Rent: £9,000

This income will start paying down any outstanding finance and providing a return. We'll assume no void periods for simplicity in this example, but always factor these in.

Step 4: The Refinance – Unlocking Equity

This is the magic of BRRRR. Lenders will value the property based on its new open market value.

Estimated Open Market Value (after works): £140,000
Loan-to-Value (LTV): Most buy-to-let remortgages offer up to 75% LTV.

Maximum Mortgage Amount: 75% of £140,000 = £105,000

Now, let's see how much capital is returned to you.

Total Money Invested to Date:
- Initial Acquisition Costs: £101,560
- Renovation Costs: £15,000
- Total: £116,560
Refinance Proceeds: £105,000

In this scenario, the refinance doesn't quite pull out all the cash invested. This is common, especially with a lower purchase price relative to the uplift. However, it significantly reduces your cash-in-hand.

Cash Returned: £105,000 (mortgage) - £[Outstanding Auction Finance Amount] (if applicable) - [Costs of Remortgage]

Let's assume you used auction finance for the initial purchase (£95,000 for 28 days at 1% per month = £950 interest + fees). And let's estimate remortgage fees (valuation, legal, broker) at £2,000.

Cash Returned: £105,000 (mortgage) - £950 (auction finance interest) - £2,000 (remortgage fees) = £102,050

Your Net Cash Outlay After Refinance: £116,560 (total invested) - £102,050 (cash returned) = £14,510

You've now acquired a property valued at £140,000, rented out for £9,000 per year, with only £14,510 of your own cash tied up.

Step 5: The Repeat

With £102,050 of your capital now freed up, you can look for the next deal. This model allows for rapid portfolio growth if executed correctly and consistently.

Key Considerations for Auction BRRRR:

Due Diligence: Thoroughly inspect the property, obtain quotes for works, and understand the local rental market. The Legal Pack Explained is your first port of call for understanding title, boundaries, and any restrictions.
Finance: Secure your finance before the auction. This includes deposit funds, bridging finance for the purchase, and a clear plan for the buy-to-let mortgage refinance.
Contingency: Always budget for the unexpected. Renovation costs can escalate quickly.
Valuation: Get a realistic valuation from a qualified surveyor for your refinance. Lenders will rely on this.
Market Conditions: Interest rates, rental demand, and property values can all impact the success of your refinance.

BRRRR at auction is achievable, but it demands rigorous planning and execution. By understanding the numbers and risks involved, you can leverage auction deals to build your investment portfolio effectively.