Rehab Complete
After a long 6 months, slightly longer than we thought, we have finally completed the renovation portion of our first BRRRR. For those who haven’t read the previous posts regarding this project, BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. So, this post is focused on the Rehab portion of the process. Below, you will see how we were able to turn a distressed property into a beautiful home for someone. This is a prime example of how Landlords can provide quality housing for renters that cannot afford to purchase a property on their own.
Before
In my previous post, I talked about how we selected a market, an asset class, then did a thorough deal analysis. This was the property we ended closing on. This property is in a B class neighborhood and definitely needed a little TLC. For most people, this house could seem like a lost cause. This type of property is unique to the area with a split level floor plan, where the bottom level is half underground. This added similar concerns as having a basement property, but fortunately, there were no foundation issues. Aside from that, we looked at this property as having mainly cosmetic repairs.
The largest rehab that we could see from the initial analysis is the kitchen. This kitchen was very dated and needed to be completely renovated. We budgeted a third of our budget to the kitchen ($10,000). Aside from the few electrical issues that needed to be resolved, the renovation included mainly flooring, painting, and finishes.
After
Like I said, the rehab took a little longer than expected and we had to reallocate funds from one budgeted item to another. But, we came in under budget (does that ever happen?!). The kitchen, though having the same layout, came out better than expected. The flooring and the new paint brought new life to a distressed home.
There were some pieces of the home that we wanted to rehab; however, the budget didn’t allow it. We wanted to install a new full HVAC system, but the quotes came back over $30,000, our entire budget. The reason for the high cost was for the fact it was a split level home. These homes add significant difficulty with running the duct work. Instead of replacing the floor heaters, we painted them with a high temperature sealant to provide longevity and give them a new life look.
Lessions Learned
Going into the rehab, we were bright eyed with high hopes! We expected the property to be renovated within two months time to get it rented out before the holiday season. Unfortunately, with the shortage of contractors and supplies, our renovation spilled into the new year. We did not want to have to try and rent out the property in the coldest of months, but our property manager is not worried about it getting rented quickly.
Each time you own a property, you learn small lessons on what could go wrong. It seems like there is always something new that you didn’t think of before it actually happens. This will likely be our one and only split level. Our general contractor had never worked on these types of properties before, so even he didn’t see the HVAC being this much of an issue.
This property highlighted how important it is to do a walkthrough and be as meticulous and detail oriented as possible. We did not notice that there wasn’t a garage door opener, nor that there was not a digital thermostat. One thing to note is that we did this fully long distance. We trusted the walkthrough to the general contractor and realtor. This made the note taking more difficult, but we learned for our next property.
On to the Next
The final processes in the BRRRR process is Rent, Refinance, and Repeat. We currently have the property listed for rent and have already received much interest. As soon as it is rented, we will start the refinance process. The property is going to cash flow regardless, so the amount cashed out on the refinance is going to depend on the appraisal. If our numbers in the analysis were correct, we should have a 25.64% cash on cash return. We will likely not get our full investment out, like in a complete BRRRR, but that kind of return is great! Especially since rents will only increase.
Disclaimer
Once again, I am not a financial advisor. These tips are some things I have validated with my own personal experiences. If you feel you need more personal advice, please consult a professional financial advisor. Dont forget to check out the Book List for published authors on this topic!
