We're close to the finish line on an out of state BRRRR project; since most of the BRRRR chatter is from people that are thinking about it or people that have something to sell (looking at you, Ohio crew), I'd thought that I'd share a realistic perspective.
Step 1 - bought the property. It was an on market deal that did not qualify for conventional financing. I purchased the property with a combination of cash and a HELOC. I was able to secure an introductory HELOC rate of 2.99% for the first 12 months in Jan 2023. It needed a new roof, new septic tank, water heater, well pump, hardwood floor refinishing, light reno in kitchen (paint cabinets, replace countertops, 1 new appliance), full bathroom renovation on 2 bathrooms cleaning up wood rot on siding, painting exterior. My initial scope of work was $70k. It will end up being about $85k. That's normal. Purchase price was $180k, appraisal was $255k for a previous buyer that fell out of contract, initial ARV estimate was $320k - 340k. Plan was a long term hold as a short term rental.
Step 2 - the plan to fund this project was through the sale of another property and monthly income/savings. We had said property under contract, buyer backed out at the last minute, screwing up our timing. The BRRRR project is a short term rental in Maine, and the sale falling through meant that the timing would not work out to get this new property up to catch the busy season. We ultimately decided to keep the other property and slowly renovate. There is no sense in hurrying to get a property to market heading into the slow/dead winter season.
Step 3 - no surprise, the renovation costs more and takes longer than expected. BRRRR is a cute term, but they should call it "You're buying a disaster of a property. Good luck cleaning up this mess!" We need to start capturing the moment that an investor first walks into a dumpy property after they own it. You're not a proper investor until you ask yourself "Why did I think this was a good idea?" a dozen or more times.
Bad surprises - The basement flooded, which meant water got into and messed up the furnace in late December, crazy rain and windstorms meant water getting through the new roof and leaking into the ceilings, a family of skunks found their way underneath the house, joists in the basement were cut out for a water line, which needed some structural repair before the bathroom could be completed.
Good surprises - the market appreciated significantly in our renovation period. The initial $325-340k ARV turned into approx $400k. It further illustrates the point that it's really hard to pull off a BRRRR without the tailwind of decreasing rates and/or market appreciation.
The BRRRR turned into a house hack of sorts. We (wife, two kids, and I) are selling our property in Houston and moving to small town, coastal Maine. It allows us to pocket a pile of tax free cash from the sale of our primary. We're skipping the refi portion and just leaving it as a paid off home. The plan is to live in this house, leave for a month or two during peak season to travel and/or visit family and cash in on July-August STR income in Maine. After two years, we will consider selling to capture the tax free capital gain or keeping it long term as an STR. The house is also 5 acres and can be parceled off into two additional lots. That's the plan going forward - to split them off and either build on or sell those lots.
Make no mistake - it's stressful and it sucks taking on a project like this - especially out of state. It was our 2nd property in that market; we have a deep bench of vendors. We lived in the first property for a couple of months getting it to market. Establishing vendor relationships is KEY. It takes time and you have to be good at building friendships and trust. You have to spend time on the ground. You also have to understand that some vendors are going to give you the out of towner mark up price. That's the just the way it is. You can also do your best to build out a scope of work, but you don't know what you have until you own it. It's also okay to say out loud that luck and forces outside of one's control make many deals work. It's better to be lucky than good sometimes. The market moved and made this one a winner. Otherwise, it was just okay. Either way, it's an asset that I want to own for the long term, so I was okay if it did not work out perfectly.
Thanks for going on a ride with me. If you've come this far, god bless you. If you commit to an out of state BRRRR, just know that you are likely committing to a long, expensive, stressful story with a lot of unknowns. Your finances and your marriage need to be in a good place.
