In my last blog post I explained the BRRRR real estate investing method to you, as well as mentioned that I have used this method both personally and professionally (with clients!) multiple times in the past to carry out a successful investment. In this week’s post I want to exemplify the BRRRR in action with an actual property and actual numbers to crunch so you can see exactly HOW this method is so successful.
This side-by-side Dartmouth duplex was listed for $209,900 and after a week of negotiations we ended up buying it for $183,500. My clients actually ended up buying this property in cash rather than mortgaging it from the beginning so this is a BRR(Finance)R in action rather than a BRR(Refinance)R, but as you’ll see, it is essentially all of the same steps.
RENOVATE & RENT
We had a closing date of August 21 and wanted to have it renovated and rented for September 1, which, as you can tell, is an extremely tight timeline. However, a few things were on our side.
The property was currently vacant and left reasonably clean to hold viewings.
Renovations were minimal and anything that needed to be done on the inside that might disturb tenants could be finished in the 7 - 10 days before September 1.
Finally, vacancy in Halifax/Dartmouth was low(less than 2%) - especially for September 1 - so as long as we had all of our ducks in a row we would meet our September 1 deadline.
Renovations started promptly on the morning of August 22nd and carried on throughout the 9 days leading up to September 1st. I actually ended up acting as the leasing agent for my clients and was able to hold an “open house" viewing in order to accommodate as many potential renters as possible. This is my preferred way to hold rental viewings for two reasons.
I’ve realized over the years that people are flaky and often don’t show up to apartment viewings. No point wasting your valuable time sitting at a house just to be stood up.
Having multiple people view at the same time creates a flurry of interest and you often end up having more people apply than otherwise would have if they came alone.
Suffice it to say we had a ton of rental applicants and signed two great tenants for $1,200 per side (not including utilities!) shortly after August 22.
Regarding the renovation cost, my clients ended up putting about $15,000 into the property in order to finish the basements, replace a side deck, clean out the vents, replace a few doors, install a new oil tank, and add a couple of new appliances. So, in total they spent just around $200,000 cash to buy + renovate this property.
REFINANCE (in this case, FINANCE)
Because there was no initial mortgage on this property this step becomes a simple ‘finance’ rather than ‘refinance’, but it is a very similar process. The best time to finance (or refinance) is when the property is looking its best. Usually this is before the tenants move in. Thus my clients ordered the bank appraisal before September 1 (but after renovations were complete) in order to have the appraiser see the property in its best possible condition. What this step essentially looks like is the bank appraiser walks through the property and assigns it a market value. What does this means for you? On this day, you hold your breath and cross your fingers and toes and hope for the highest possible value.
And they got it! Post renovations the duplex was appraised at $256,000. The bank allows you to pull 80% of the appraisal value back out (leaving the 20% down payment essentially). Eighty percent of $256,000 is $204,800. If you remember from above my clients put $200,000 into the property to purchase and renovate, and now are pulling $204,800 back out. Not only did they make a few thousand in the finance step, they now own this property with zero of their own money into it AND it still cash flows hundreds of dollars each month. Where else can you find a monthly return on $0 that will essentially continue paying you forever?
And that’s it! In less than 30 days we were able to buy, renovate, rent, and refinance. Not to mention my clients don’t even live in this province and we were able to do all of this across multiple time zones. And now that they have pulled out their entire initial amount of cash invested, they can use this same recycled chunk of money to do the exact same thing on another property. And another. And another. To infinity and beyond :)
Interested in carrying out the BRRRR method yourself? Contact me at 902-789-5149 or firstname.lastname@example.org
Happy investing, friends!