Northeast Ohio BRRRR Complete!

[Jen R.]

Hello BiggerPockets community!

Wanted to share the details of our most recent BRRRR project in Cuyahoga Falls, OH (just north of Akron). We purchased this property off the MLS as a 2 bed/1 bath for $55,500. Total renovation (including closing costs) came in around $46,000 and took 3 months. The bulk of the renovation consisted of foundation repair, and costs to access the attic space in order to add a master suite. We now have a 3 bed/2 bath with estimated ARV at $140,000. A few before/after shots:

We are waiting on the cash-out refinance to close, which will give us $96,000, so we will be leaving about $5,200 in the house due to the bank's appraisal coming in a bit lower than expected. This is the first time we've ever had an issue with an appraisal; in reviewing the appraiser's four "comparable" sales, two of the properties were only 3bed/1bath homes, and the other two were un-renovated 3/2 homes that sold almost a full year ago. I'm disappointed, as there were at least 4 much more comparable sales within the past 3 months that would have given us the value we needed, but perhaps we just got stuck with a lazy appraiser this time around. In any case, leaving $5,200 isn't bad enough to refute the appraisal, so we are moving onward. Detailed renovation costs and rental numbers posted below:

Item	Cost
Demo (includes removing kitchen wall & installing support beam)	$1,500
Exterior paint & siding repair/replacement as needed	$4,500
Roof repair	$350
Foundation repair/basement waterproofing	$6,200
Renovate existing bath (new tub & fixtures)	$975
Build new staircase to access attic	$3,600
Finish attic space (reinforce joists; install subfloor; insulate; install windows; framing; electric; drywall; add bathroom)	$19,500
HVAC	$2,000
Tile tub surrounds in both baths*	$600
Electric (new fixtures/outlets/switches)*	$400
Interior paint*	$800
Flooring*	$1,900
Misc carpentry (trim work, shiplap, floating shelves, etc.)*	$575
Misc (landscaping, kitchen faucet, door & cabinet hardware, drywall repair, smoke detectors, etc.)*	$600
Utility costs during rehab	$200
Closing Costs	$2,000
TOTAL	$45,700
*DIY jobs; cost listed is for materials only

We have almost a dozen showings lined up this week after just a few days on the market, and hope to have a tenant selected over the weekend. Here are the rental projections:

Rent: $1,200/mo

Taxes: $1,600

Insurance: $625

Maintenance & Capex: $1,500

Vacancy: $720

Yearly Expenses: $4,445

Debt service: $625/mo 

Net Income: $2,455

Cost basis: $5,200

Cash on cash return: 47%

[Jen R.]

Thanks @Brendan Taylor and @Mike Walker!

@Austin Peck - I can share a few things that we considered! In this house, we had our contractor inspect the attic joists and make sure they could handle the extra load (he determined we had to sister each joist with a 2x8). You also need to ensure that the remodel will conform with local building codes, as far as ceiling height, stairs, egress, etc. In our case, most of the houses on the street were built with the same footprint (and the same roof pitch), and already had finished attics, so we were pretty confident this wouldn't be a problem. You also need to ensure there is room for the new staircase; we ended up moving a couple of walls and reconfiguring the layout of the main floor to fit them in, but this isn't easy in a small house. You'll also need to consider the required plumbing runs - can you place the new bath above an existing bath, or will you need to build chase walls and run separate plumbing up in another area? Same with HVAC - we lost half of a closet in order to install new ductwork.

When we bought the house, we had a backup plan of finishing the basement and adding the 3rd bedroom and 2nd bath down there along with a rec room. This option was a bit less expensive than the attic, but we wanted to add the square footage and gain more value. But, if your attic space cannot be used, this may also be a good, affordable option, depending on how much basement beds/baths are valued in your area. 

Though we have finished attic spaces into bedrooms in the past, this was the first time we have completely built out a new attic space. Because of that, this was also the first house that we ended up hiring a GC (who does his own carpentry) for the attic job, which is why that cost is shown as one line item in the breakdown above. He did the carpentry work himself and took care of all the permitting and scheduling of electrician, plumber, HVAC, and drywall. 

We specifically look for 2 bedroom houses with room to add a 3rd bedroom. I think oftentimes traditional buyers completely overlook these (they may only search for homes with 3+ bedrooms), so there is more opportunity to snatch them up below market value. Including the attic, this house is around 1,100 square feet, and in my experience, that is about the minimum square footage you need to get in that third bedroom.

I hope that helps!