BRRRR Success Story Janesville WI, 53546

[Cory Childs]

Currently on the final process of my first successful BRRRR, the repeat!

My girlfriend and I purchased this property at a sheriff sale auction in Janesville, WI on July 2017. It is a 3 bed, 2 bath, probably a c+ neighborhood. Purchased for $49,401. We had all the intentions of flipping it to make a quick return, until we started looking at all of our options. The return would have been great if we just sold the property. However, I also would like to build passive income to lead us into financial freedom someday. Therefore, we decided to rent the house and do a cash out refi once we stabilized it with tenants.

By the time we got the deed after the courts process, it was into august before we were able to start the rehab. I have some background in rehabs from previous experience working on our homes so we decided to take on the rehab on our own from the beginning. The process went as planned for the most part, nothing catastrophic. The water heater was bad. The gas line into the house leaked when the gas company turned it on. The furnace needed a capacitor replaced. Luckily, I know a few plumbing and heating people that were able to help us with these three items rather cheap.

By the end of the renovation, we had spent about 8 weeks on the property, working some nights during the week and every weekend. We had a lease signed and tenants in there November 1. From there we had a six month wait to refi it, if we wanted to go off the appraisal price over the purchase price. March came and we cashed out, just over 9 months from initial purchase. We have since bought another property we should be starting the rehab on later in May.

The numbers:

Purchase Price: $49,401

Rehab Costs: $5,640.54

Total Investment: $55,041.54

Insurance: $805/yr

Taxes: $2071/yr

Rent: $875/mo + utilities

NOI with 5% vacancy allowance, 7% maint & cap ex: 6,200

Before Tax Cash flow is +$110/mo considering the same as above and after mortgage payment (princ. & int).

Appraisal came back at $98,000

Giving us a 6% CAP Rate

Mortgage: 30yr @ 5.375%

75% LTV gave us $73,500 back on our initial $55,041

A few things I learned from this process:

Even though our cash on cash return is still infinite, I still question if I will take the larger mortgage out on future properties. We could have taken a $55k loan to get our initial investment back and our cash flow would have been $104/month higher. We are still at 25% in equity, and cash flow positive, just not by as much as I would like. The cash is being reinvested in another property right now, so the benefit is allowing us opportunity to grow our portfolio quicker. At some point, I do see us needing to adjust our focus to increasing cash flow from each property.

Look at delinquent utilities. I did my due diligence and pulled the taxes to make certain nothing excessive was due. Even called the city to see if any charges were pending for the current year. However, we were hit with a surprise $650 utility bill after taking title to the house. Not the end of the world, but something to consider.

I am still searching for local lenders that will consider the appraisal price before a six month “seasoning” period. Reducing this time would allow us to accumulate more properties at much faster rate. I have tried local credit union and had no luck yet. Let me know if you have any tips on this.

Because this is my first BRRR, I am very curious what the bigger pockets community thinks about it, and my comment above. Look forward to hearing from you guys.

Thanks!

Before - Kitchen

After - Kitchen

Before - Bathroom 

After - Bathroom

Before - Living

After - Living