Our First BRRRR Property - didn't go according to plan...

[Nathan Zierer]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $160,000
Cash invested: $130,000

Contributors:
Sarah Zierer

This duplex was our 1st try of the BRRRR method. During the 1st walk through, we made notes to gut the bathrooms, clean & paint the rest of each unit & leave all else alone. Once we closed & started demo on the bathrooms though, it quickly became apparent that we were going to have to do the kitchens as well (as wood rot & some mold had started spreading there too). As we were clearing out the "finished" basement, drywall hid a structural crack around the entire foundation.

What made you interested in investing in this type of deal?

The property was under valued and in a prime location. We wanted to try our hand at the capital gains potential with a BRRRR.

How did you find this deal and how did you negotiate it?

We found it on the MLS, toured it within 12 hours of hitting the market, and made an offer a few hours after touring. Closing happened quickly because of it being a cash offer (though we intended to finance it).

How did you finance this deal?

Our bank fell through at the last minute, and we had to close in cash. We used a HELOC on our personal property to cover the difference.

How did you add value to the deal?

We tore bathrooms/kitchens down to studs & rebuilt with all-new plumbing, electrical & updated layouts, including dishwashers. A structural engineer inspected the foundation crack & determined it only needed epoxy filling. Additionally, we installed a new sewer lateral, water heaters, windows, light fixtures & outlets, roof (including facia, soffit, & gutters), blow in attic insulation, patio, sidewalks, parking pad & privacy fence. The furnace/ACs we hope to get a couple years out of yet.

What was the outcome?

Although it isn't the highest ROI, the value of the house is about 15% more than what we have in it & our cap expense going forward will also be minimal. We've refinanced & pulled out 2/3 of our money, giving us 9% ROI. This is one of our top producers, hence the cliché real estate term "Location, Location, Location". The property runs smoothly, & we are considering converting one of the units to a mid-term rental since it's located less than half a mile from the two largest regional hospitals.

Lessons learned? Challenges?

Nothing better can be said than truly vetting your general contractor - we had many problems with them through the project, and he ultimately walked off the job mid construction.