My first BRRRRR project

[Marshall Magnus]

Hi all, I wanted to share my experience with my first project as a real estate invest

or.

I am 30 years old and live in Edmonton Alberta with my wife and three kids (2,4,5), I am a land surveyor and just starting my life as a real estate investor.

It started with a book; you know the one. Rich Dad Poor Dad. That led to many other books and then to bigger pockets. After I felt I knew enough to get started (I think a couple of years) I decided to lean into my strong areas. Being a construction worker and a handy guy, I decided to buy something that I could work on to force appreciation. Then I would rent it out and refinance it, in short BRRRR.

My wife has been looking after the kids full time since our first was born, but fortunately we were able to save some money. I did alright at playing with the stock market but hated it. After about 8 years of luck with the stock market and saving some money here and there we had $40,000 which we decided to use as a down payment for our first rental house. Any further costs from renovating would come out of our line of credit. Then the hope was that at the end of the renos we could re-finance the house and pay off our line of credit. Whatever house we found would have to be $200,000 so that we could put a 20% down payment on it.

I bought a house in NE Edmonton (a not so savory area, but an area on an upswing) that was in need of some major repairs. It was exactly $200,000. This place had tarps on the roof, holes in the floor a 60-year-old furnace and so much more. As a Land Surveyor I do a lot of CAD drafting, so I drafted a model of the house in perfect scale and came up with a detailed sketch of what I wanted the house to look like. I really geeked out on this part, I had every foot of wire, every plumbing fitting, every drywall patch labeled and accounted for. Then it was time to start the spread sheets. I really geeked out. All of this planning actually happened during the closing process and before I had possession. This worked to my benefit because I really got to wrap my head around the project before I started any work.

I got possession in Novembe

r 2020 and began work. I gutted the kitchen and bathroom. I ripped out all of the existing electrical throughout the house. I had an electrician upgrade the power from a 40-amp service to a 200-amp service, this would give me room to develop it into a duplex later (the next phase of my plan). I had the furnace replaced. I re-shingled the roof. I designed and built an Ikea kitchen with a double layer of upper cabinets, 30” uppers with glass doors and 15” upper uppers on top of them, an island and all built in appliances. I had granite countertops put in. I tiled the backsplash and tub surround. I replaced the floors with luxury vinyl plank, I replaced all the doors, and all the trim. Lastly, I painted the place. This all took quite a while as I have a 50-60 hour a week job during the summer months and I tried to do all the work myself. Each thing I took on was a new experience and each time it was scary at first, then I would research how to do it. Then all I had to do was buy the supplies and execute on what I had just learned. After each part was completed, I was amazed, I did it, and it even looks alright.

Doing the work was fun, scary, boring, and satisfying at different parts, but the part I was truly nervous for was coming. I didn’t know anyone in real estate who could validate my ideas or progress, I didn’t have any second opinions and I didn’t have any promises that this would even work. I was not sure if the bank would refinance the house. I had confidence in the house as a valuable asset but it was only my best guess as to what it was worth, and if the project was a success.

So here are the numbers. I bought it for $200,000 with a $40,000 down payment. The reno cost (there was next to no labor charges) was $44,600 and the holding costs from November 2020 to August 2021 were $9,500 (mortgage, insurance, utilities, interest on line of credit). I did not have $500 available to me in any form of credit by the end… It was pretty grim, but it was time to rent it out. I screened the tenants scrupulously and found a great couple. They moved in September 2021, and pay $1,450 a month and all the utilities. In November 2021 I went to the bank to refinance and was approved! They sent out an appraiser and assessed the house to be worth $300,000! The whole thing worked! BRRRR really works! We have the house, rental income, and we got a cheque for $79,000 from the bank.

I did not waste a minute. I started drawing up plans for the basement right away. I put together all of my pictures, spread sheets, drawings, receipts and closed the folder on my first real estate project.

Now I am separating the basement into a Legal separate dwelling to make the house an up/down duplex. The project is already underway.