Hi All, 

Just wanted to post my experience with BRRRR method. I invested in Lansing, MI. I am originally from Grand Rapids, MI and currently live out of state in MN. Below is my 2019 experience jumping into real estate. LLong post ahead. Hopefully I cover the main points fully. So please follow up if you have any questions!

To get the capital for below it was a mix of savings and a HELOC on my primary residence.

TL;DR In 2019 I purchased a SFR and a Duplex in Lansing, MI. My first property was a fail due to an expensive rehab and margins that are way too slim. The duplex was for the most part a success. I was able to cash out most of my money and have a pretty good cash flowing property. I bolded my mistakes below. I probably made several more, these are just the ones that come to mind.

I will start with the BRRRR FAIL. In March 2019, I purchased a 3/1 SFR in Northwest Lansing. The purchase price was $35000. Based on my analysis at the time, I thought the property would be worth $52000 after rehab. Based on the photos of the home, I had thought it was a pretty easy rehab with simply replacing the water heater, paint, and some other cosmetic updates here are there. I had a estimated a budget of ~$5k for repairs. Of course this was too good to be true and I was antsy to purchase my first property so I pulled the trigger.

I used a conventional loan from a local credit union, Michigan State Federal Credit Union. 20% down. 

MISTAKE#1 Closing Costs are EXPENSIVE. In my numbers, I did not budget for closing costs. Those came in around $3k for this purchase. 

Once I closed and got on the property, I walked the house with the contractor I planned to use. What I couldn't see in the photos were the shoddy workmanship the previous owners had done. There was lots of issues with the trim looking terrible, floors laid poorly (big gaps on sides), doors and walls in bad shape here and there Random door from a bedroom closet to the hallway (lol why?). Crap panelling just tossed on the wall. I didn't feel comfortable renting a property in this condition. 

MISTAKE#2 video walkthrough or better photos could have avoided this. 

Now once the rehab started, we realized there was some structural issues with one wall, there was extensive wall damage due to poor plumbing in the bathroom. This left me with rehabbing the whole bathroom instead of cosmetic update. This was just unfortunate. All in all, rehab ended up around $12-13k after painting. 

MISTAKE #3 I was working with a Contractor I liked. He completed the job within a reasonable time. His quality was pretty good, but I never got a second or third quote for the work. I am realizing he is pricy after the fact now. 

Rent: This property is rented for $760 to Section 8. This is lower than I was predicted for rent, but I just wanted it rented at that point. 

Refi: I used the same credit union to refi. They do 75% loan to value. Rough numbers below:

$53000 (appraised value) 
X .75 (LTV)
= 39750 (Loan Amount)
- $3000 (closing cost on refi)
- ~$28000 (existing loan amount)
= ~$9000 (cash out back to me)

All in all, this property was a FAIL. I was stuck with about $13-$14k in the property. It isnt renting for what I had hoped. Not to mentioned I had to replace the furnace I was hoping would last another year or two this past winter. 

So, onto the BRRRR SUCCESS. In July 2019, I purchased a SFH converted into a duplex. This is in the Old Everett - Greencroft Park neighborhood. Bottom unit is a 2/1. Top unit is a 1/1.

Purchase Price: $29500. This was listed at $45k. I tossed out my offer and due to their circumstances, they accepted it with no comeback. 

This house was in pretty rough shape. The upstairs unit looked decent. Had recent laminate flooring, but needed paint, new bathroom floor, new toilet. The downstairs needed all new flooring, new cabinets, new appliances, new drywall. Also some roofing needed patching. Some plumbing needed fixing. etc. Based off my assumptions, I thought this home would be appraised on the bright side $70k. On the low side, $55k. 

So trying to take some lessons learned from my first property, as part of inspection, I had two contractors supply a bid for the property. This ended up working out okay. I was okay with a rehab budget up to $10k. MISTAKE#4 There was a severe miscommunication with my contractor about his bid being labor only. I should have known that his bid was too low to be Materials + Labor. I learned the hard way about a mismanaged project and how it affects timelines. This was a decent size project, but it took 3+ months which seems much too excessive. MISTAKE#5 Poor project management should have been identified and fixed immediately. Shouldn't let a contractor take this long. MISTAKE#6 Scope creep was real in the project. Small things just added up one after another. Moving outlets into the wall, issues with hvac vents, extensive roof patching, new doors, etc. 

Rehab ended up ~$15000.

By late December , the property was rented. Total rent is $1400 for the two units. 

I am in the refinance process now with closing anticipated in the next week or so. I just got the appraisal back last week at $40,000!! Which is outrageous because the house in disrepairs was appraised at $33,000. I sent my loan officer an email with my disagreements and reasoning. Revised appraisal came back today at $64,000, which was soo much better. 

My refinance was again through MSUFCU. Rough numbers expected below.

$64000 (appraised value)
x .75 (LTV)
= $48,000
- ~23000 (loan balance)
- ~3000 (refi closing costs)
= $21-$22000 (cash out amount)

My all in was around $25k so I am ecstatic with the amount of money I have left in this deal. 

Although, with the good news of the appraisal coming in at $64000, I got bad news that city inspection came up with some plumbing fixes needed. That will cost $1200. 

My next steps: Add a second electrical circuit breaker to the duplex to accommodate baseboard heaters so i can split the heat utility in my duplex. Quote is about $2000 for this. Even with the last expenses I still consider the duplex a success. 

For 2020, I am planning on spending Q1 & Q2 regrouping my savings and reevaluating the path forward then. 

Apologies if this was scatterered, I just realized how hard it was to write a year long recap after I had already committed. haha