Straight Up Instructions for my first BRRRR

Step 1 - Selecting an area for Airbnb

a) Since I was starting from scratch I figured I would start by building my own spreadsheet to elucidate the best performing areas for Airbnb investment properties. I started by pulling median house prices for cities in the major regions near me. I mainly used: https://www.zolo.ca/

b) Next I pulled the Airbnb market demand score and average monthly income for each city from: https://www.airdna.co/

c) To create an overall market ROI I took the average monthly income, multiplied it by 12 for 12 months and divided it by the median house price for each city. Airbnb Location Reference Spreadsheet

d) With the numbers all in front of me I decided on Hemlock Valley due to its low median housing cost, strong monthly average income and I learned that the Berezen Group had bought up the mountain and were approved for phase 1 of a 1.5 billion dollar expansion plan for turning the small ski resort into an all season village. 

Step 2 - Selecting a Property

1. a) The first thing I needed to do was confirm that there were no restrictions for short stay rentals. After a quick chat with the city planning department I learned that there were no restrictions for short stay, I can’t buy their cheap land and park a tiny home on it and there was no empty homes tax up there.
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3. b) At this point the search was pretty straight forward. My criteria was a property that I could substantially increase the value of through renovations and cashflow on Airbnb. I looked at a condo, a townhouse and a log home cabin. Each had attractive features, the condo was cheap and as close to the ski lift as possible. The townhouse was middle of the road priced, very large and it was log. The log home cabin was the 2nd closest house to the ski resort, it was on over 10,000 sq/ft of land and it was the cheapest house on the market and it needed lots of reno’s. The cabin was an easy choice.

 

Step 3 - Creating the Pro Forma

I used the Bigger Pockets BRRR calculator to create my Pro Forma. The below steps explain how I came up with the numbers and information to fill it in.

August 18, 2019 Pro Forma

1. List Price- The MLS Listing price was more than fair. We ended up paying $5k under list and got it fully furnished. A lot of it was junk, but we kept some nice things including snow shoes and hot tub supplies.
4. After Repair Value $770,000- I used the Realtor MLS software “Paragon” hooked up to “Cloud CMA” to estimate the after repair value at $770,000: CMA
7. Closing Costs $12,000- I used the closing costs calculator at  Pihl.ca to estimate the closing costs at $12,000. At the time of writing this the calculator no longer seems to be available, but here is a screenshot of my estimate: Closing Costs Estimate
10. Reno Costs $120,000- For the reno cost I assumed the worst at $120,000 after everything is said and done. I used: https://www.smartreno.com/en-ca/cost-estimator
13. Mortgage Details- To estimate my purchase loan details I got in touch with a Mortgage Broker that does a lot of deals up in Hemlock. After reviewing the qualifications of my Joint Venture Partner and I he gave us an estimate for the down payment, interest rate, amortization and fees: http://davidgilbraitti.ca/
16. Reno/Refi Time- I originally estimated a 3 month renovation period and 4 month refinance period. My estimate was based on the assumption that we would have enough capital to hire professionals to get the job done quickly. As it turned out we didn’t have the capital as the bank was only willing to finance $350,000 of the property and the rest we financed through my JV partners home which was intended to be used for the reno’s. We Are approaching 6 months now. The Airbnb income has more than financed the reno’s we have done so far. We have saved a lot of money in labour and materials by doing things ourselves and leveraging our network, but the time it takes to execute the whole process is more valuable to me. I would pay for the pros if I could.
19. Gross Income Estimation $5,700- I originally calculated the projected Airbnb income for the property with Elliotandme.com; however, It seems I did not save the screenshot and elliotandme was acquired by airbnb. So I’ll screenshot the Airbnb projected income and the Pricelabs Market Report: Airbnb Income Estimate, Price Labs Market Report
22. Utilities $300- I contacted the Utility company to get an estimate of costs at $300. This number includes water, sewer and electricity.
25. PMI $325- I do not currently have private mortgage insurance; I do however have short stay rental home and liability insurance which has coverage for my airbnb income. Upon writing this out I realized I should really know what % of my airbnb income is covered. Will look into it immediately.
28. Garbage $25- I used my local garbage pickup cost for my original estimate. Turns out Hemlock doesn’t have garbage pickup. Might be an opportunity there.
31. Insurance $110 (2%)- When I estimated this amount, I was under the impression that I was going to need liability insurance in addition to home insurance. Turns out they came together.
34. Management $855 (15%)- The  industry standard for Airbnb property management is 15-25% based on the income of the property. I am expecting high income for this property, so I set the management low. In this particular deal property management is part of my contribution to the investment so this value isn't actually factored into the cashflow; however, I wanted to make sure that the property was capable of covering it to keep the option open for the future.
37. Principal and Interest $2,148.00- In my original Pro Forma I did something very confusing. I used the Pre-Refi section to enter the amount of money that we borrowed from my JV partners home residence equity and the Refi section to enter the mortgage borrowed against the cabin. So the entire property is fully financed. We put no cash down for closing costs or downpayment. I used the refinance section. I’m in the process of creating a new Pro Forma with the actual costs of each thing now that we can confirm them and I figured out how I can enter the pre-refi section properly while accounting for the loan from my JV Partners home equity.
40. Misc $180 (3%)- Airbnb Service charge. It’s worth noting that this includes the “Host Guarantee” which covers damage caused by guests.
43. Vacancy 0%- The income estimate is based on the average monthly rate multiplied by the average occupancy rate so vacancy is already subtracted from the income.
46. Repairs/Capex $285x2 (5%x2)- At the time of my original Pro Forma I didn’t know how to properly calculate capex so I referred to google for a % of income. The % of income was based on long term rental income, not Airbnb income so I drastically overshot the amount needed to be set aside.
49. Annual Income Growth 5%- I recall 5% being a conservative estimate based on a google search. Normally I would use Airdna to get this number; however, the Hemlock market is not yet available.
52. Annual Property Value Growth 5%- I wasn’t overly concerned at the time with the PV growth at the time so I picked a conservative number from a google search based on minimum 5 year growth history of the Fraser Valley area. The property assessment has increased 20% from 2019 to 2020.
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54. Annual Expense Growth 2.5%- Based on a google search of inflation

Investment Performance Compared to Estimate

January 31, 2020 Pro Forma

I left out the closing costs because they were financed through my JV partners home equity. The cash on cash is actually inaccurate because we didn't use any cash for any of this project. The acquisition was financed with a mortgage on the property and the equity from my JV Partners home, while the reno's are being financed by the Airbnb income. I'm excited to wrap up the reno's and refinance for the next project.

Mint Account Cashflow Overview