This was an interesting purchase simply because the property was on the market for quite some time and it was not selling. The original list price was $550k. There was a bit of a lull in the market during that time of year [Aug’19]. In addition, the property was not well positioned when it hit the market. The seller was forced to lower the price, but it was still not generating enough action. We looked at this as a huge opportunity and decided to put our offer in. After much negotiation, we settled on $495k purchase price. We jumped on this deal simply because we saw an opportunity that others did not.
Since this was an investment property, we had to put a down payment of 20% or $99k. There were also closing costs of approximately $10k which included land transfer taxes and lawyer fees. The property was already converted to a legal duplex however it was not up kept to today’s standards. We knew we can easily do some small renovations to give it a nice facelift. In total, we spent just under $30k on renovations. There was not much work that needed to be done. We did minor work in the upstairs unit – we simply put in a new Washer/Dryer and Painted the rooms. For the downstairs unit we added an additional egress window, new vinyl flooring and a washroom. See below – before and after pictures of the different milestones of the project.
Bedroom Renovation - Basement:
New Washroom – Basement:
The size of the property has also enabled us to have a unique design in the basement unit. It has 2 bed + 2 baths. The bedrooms are separated and located on opposite sides of the house. This is ideal based on tenant feedback – to ensure a “sound” sleep throughout the night. This has commanded not only demand for the unit but also higher rent price [$1,650/month].
We closed the property in Sept’ 19 and were able to rent out the top unit right away [Nov ‘19]. This helps cover most of the holding costs during the renovations. It is usually just enough to cover the mortgage. We would then pay $600/month [insurance, hydro, water, and property maintenance] until the renovation was complete, and a new tenant moves in [into the basement unit]. The renovation turnover is quick, and the basement unit is usually complete – just a couple weeks after tenants move into the top unit. This is vital for a good tenant experience.
Now let us talk about the numbers. We covered our investment already which consists of $143k. This includes the down payment, closing/lawyer fees, renovations, and holding costs. Once the renovations were complete – the next step was to get the units rented at top market rents. This will ensure that your appraisal comes in favourable. The total gross rent for this apartment is $3,700/month [$1,850 Upstairs, $1650 Downstairs, and $200 for the Garage]. We got the property appraised at $610k. Remember since it is an investment property, we must keep 20% down payment in the property [$610 x 20%] = $122k. This means the bank can re-finance up to $488k [as part of our new mortgage]. This is the difference between the new value [$610k] and the 20% down payment [$122k].
But we only owe $396k – what happens to the rest of the money? We get $92k back from the bank.
At the beginning of the project, we invested a total of $143.5k but if we use $92k to pay off that initial investment we are left with only $51.5k still in the deal. A a perfect BRRRR is when you can extract all the money. This was a solid deal though mostly due to the long-term growth potential. This is by far the smallest house in the neighbourhood and has a good potential for further appreciation. The area is the primary reason why we bought this place. This is a mature neighbourhood with recreational centers and schools just a short walk from the property. We will be holding this property for the long terms – to ensure we reap full benefits from this buy.
Now we have a property that generates $8,172/year in cash flow, our mortgage is getting pay down by $15,272/year and the property is appreciating by $12,200/year [by 2% conservatively]. The total ROI on the project is 69.21% or $35.6k – not bad for $51k investment. We always want to get all our money out of the deal – to essentially have a “free” asset that generates cash flow, appreciates in value, and gets the mortgage paid down each month. In such a scenario, we would have infinity returns simply because we do not have any of our money invested in the asset. This is not always the case however in this scenario we were able to get $92k back from the bank. Our goal is to always repurpose this money on our next project and that is exactly what we did - a couple months later we closed on our next deal in Hamilton; just 5 minutes from this property. This is the last step of the BRRRR strategy – Repeat.
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 firstname.lastname@example.org
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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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