My first BRRRR made me $55k and infinite ROI

[Andy Krzanowsky]

I just wanted to share the story about my journey in real estate and more importantly focus on our first BRRRR.

Basically, I started like many people and ended up becoming an accidental landlord. We opted to keep our primary residence as a rental when it was time to move into our new house. We live in a beautiful college town in northeast Kansas. Lawrence is home of the Jayhawks and is a wonderful place to own property. While it was a tough decision I’m quite thankful that we took a chance to rent the property. It turned out to be a remarkable success and like many other people… the seed was planted. I spent the next year reading books, scouring the forums, and listening to all the BP (BiggerPockets) podcasts. Through their guests I found many other books, podcasts, and resources to help me push forward with the education.

I would like to focus on our recent BRRRR although it was not the first deal I made after becoming the accidental landlord. I can't even begin to paint the picture of how anxious I was through this process. My personality type is certainly "A". It's hard for me to let go of control but not having the experience in this area I knew that I would have to "let go" and trust other people. My skillset is "handy" and I often take on small projects around the house but have never done anything of this magnitude.

The property we purchased is centrally located between downtown (nightlife, food, music, etc), KU Campus, and many of the Greek houses. As you can imagine based on that description the renters in this part of town are predominately college students. I located this house by doing some online property searches… I was looking at homes and found a house that I lived in during college.  I saw it had back taxes and picked up the phone. I knew the owner’s son and he put me in touch with the owner. It turns out the home had been sitting for a year and they were ready to sell.

Now I had a deal in the works but started to get cold feet due to lack of experience. Thankfully I had some great people to talk to about the deal and we decided to move forward. My tip here would be that we all get anxious/nervous about jumping in but build a network of people you can trust to help get you through those moments.

The lender we used was awesome and “held” my hand through this process. We could get into this deal with 10% of purchase and 10% of renovations. The loan was interest only for the first 8 months and then rolls into a 5 year fix on 20yr amortization. The property was appraised at “as will be” of $155k.

Enough of the fluff… BP members love the details. I’ll stick with some round numbers

Purchase- $82.5

Rehab low estimate- $22.5

Back taxes- $4300

Without going into all the details of the settlement statement it cost about $12k to close the deal.

Purchase pictures: All my pictures are showing up sideways so I'll include my link

CLICK!

Pre- Rehab

We did a large rehab on the property and it was needed. Overall the house was solid but lots of past due maintenance. Luckily the water service into the house was new. Sewer line had been fixed in recent years. It had a newer electrical panel in the early 2000’s

- All new windows

- New furnace with ductwork repairs and venting added

- Bathrooms totally gone through- Virtually all plumbing is totally newMoved washer and dryer upstairs from the basement

- New drywall in some areas, drywall repairs, whole house was textured with knockdown

- Total paint job including ceilings, walls, trim, doors, and cabinets in kitchen

- Floors refinished throughout and then new LVP flooring in baths and kitchen

- New electrical throughout and was finished with LED fixtures for convenience

- Took down a couple of sketchy decks and repaired some siding issues

- New countertops, added disposal, added dishwasher in the kitchen

There are tons of things I’m leaving out but just little bit of detail to show the depth of the project. For a newbie like myself this project was a challenge.

Rehab costs came in right around $35,000 including all my holding costs. This put my total out of pocket investment right around $25k since my rehab costs were about $13k more than my estimates. I’m glad we spent the money and did the work we did as it paid off BIG TIME.

Oh yeah… during the rehab I was able to secure tenants that were going to move in mid-August with a rent of $1450/month. This is a little low for the area but I was thankful to get tenants during the rehab because I would have been in a tough spot trying to rent it after completion.

The next thing I did was invite my awesome realtor to check out the completed project. She is an avid investor and agent in my market. Top sales agent in the county for Keller Williams. Absolutely, she has been one of my best resources for making it this far. Her feedback was great and we talked about values… she thinks no problem it is a $175k and up house at this time. I was STOKED… added equity that I had not counted on. Also, before I forget, we both project the rent to increase to somewhere around $1650-1800/mo next year.

After Reno-

In review…

All in costs are about $120k

ARV is right around $175k

Rent currently $1450/mo but next year will be close to $1800/mo

Currently in the final stages of refinancing the property. We are going with a conventional loan on a 20-year term. Our payment is going to be right around $1000/mo with PITI. We are going to successful get 100% of invested capital back from this deal during the refinance after all closing costs

Basically, our ROI is infinite with no money invested…What a lovely thing. Prior to accounting for our typical expenses, the property will cash flow around 450/mo this year but up to $800/mo the following years. Yes, we account for things like maintenance, cap ex, vacancy, etc. I'm just keeping it simple here.

Thanks for following along and would love to hear your feedback or maybe some local investors who have another deal for me to take on! Hope you don't mind the catchy headline but we did make around $55k in equity for our first BRRRR and no money down after the refinance.

Huge thanks to the BP community for helping me chase a dream! The lack of sleep, stress, working a full time job, and taking care of my family was totally worth it.