We bought this property right when the Covid-19 pandemic started. This property was purchased of MLS – but did not receive much traction. There were a couple issues with how it was put on the market. First, there was an open house that was cancelled due to family emergency. Second, the sellers’ agent did not have an offer date – which is the norm for a hot market. This will ensure there are multiple offers [and hopefully a bidding war]. We were fortunate to view the property [probably 1 of 5] and we put an offer in that day. We ended up settling on $487k purchase price [Mar’20]. This was an interesting buy simply due to the pandemic. There were a few issues with the lock down. It caused major delays in sourcing and purchasing materials. There were a lot of unknowns at the beginning however we knew that our strategy [BRRRR] would work in this environment. The main reasons are:
1. Low purchase price [comparable sales were at +$550k]
2. Forced Appreciation from renovation
3. Strategy based on Rent Demand
Like most of our properties, the upstairs unit was in really good shape and needed minimum work to get it ready for the rental market. We simply added an extra bedroom to make 3 in total. The original layout had 3 bedrooms, but the previous owners opened the wall for a dining room. We wanted to bring it back to its original design simply because we can get an extra $200/month in rent. The property is located near 3 schools so the additional bedroom would be ideal for young families. We also painted the whole floor a neutral grey color that we use on all our properties. This makes it easy for us to manage - no color matching required. We can simply provide the code to our painter during tenant transitions [for touch ups] or renovations.
In the downstairs unit – we had quite a bit of work. There were some challenges along the way, especially with the layout. We always want to make sure we have 2 similar sized bedrooms while keeping an open concept in the living room and kitchen. This makes the unit feel bigger and less like your “typical” basement apartment. Below is the advertisement that we had for our finished product.
We were able to rent out the place for $3,400/month [$1750 Upstairs + $1650 Downstairs]. We could have gotten an extra $200/month but due to the uncertainty of the pandemic – we lowered our pricing to ensure we fill the units right away. With this deal we tried something a bit different the Purchase + Improvement’s product. The lender essentially incorporates the renovation costs within the mortgage. You must meet certain criteria before and after the project to be eligible, but this is a great way get the renovations covered using OPM [Other People’s Money]. We decided to go this route because like most people [in the beginning of the pandemic] we were expecting the housing market to level off, but instead it did the complete opposite. With uncertainty in how the market was going to react – we wanted to just cover our renovations. This gave us the 100% guarantee of getting some of our money back – we did not have much confidence in the market at that time and hence did not go the traditional refinance route.
Let us dive into the numbers – as mentioned earlier we picked up the property for $487k. In total, our investment [down payment, closing, holding, and renovation] was $162k. Once the renovation was complete the appraiser came in to check that all the work was done as per the quotations that we sent in prior to the project approval. If you notice this strategy created a big gap between current value and our equity stake in the property. Our total investment after receiving the money back from the bank is $114k. With this, we are seeing 24.85% annual return on investment. This includes mortgage pay down, cash flow, and market appreciation of 2% [conservative for our area]. The market was on fire in 2020.
Fast forward 12 months later and now we are thinking - should we refinance?
At today's’ evaluation [$750k] we should be able to pull out another +$175k which will not only give us all our money back [total invested] but also provide us with +$61k to invest into our next deal. What started out as a mediocre deal last year turned into a home run 1 year later. This is exactly why real estate is so powerful – after the refinance we will have essentially a free asset that produces passive income. Since there is no investment of our own money in this project – we will see infinite returns after the re-finance is complete.
If you are interested in finding out more information on how you can invest with us on our next deal – reach out to us directly at 289-242-6294 or steeltowntitovs@gmail.com
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Have you seen our book "The Novice Investor"? https://tinyurl.com/y3gbtw3a
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LEGAL DISCLAIMER
The information provided in this blog is for entertainment purposes only and is not intended to be a source of advice with respect to the material presented. The information contained in this blog do not represent legal or financial advice and should never be used without first consulting with a financial professional to determine what is in your best interest to meet your individual needs.
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