BRRBNB - A Winning Strategy!
Hey all - just wanted to share my experience with our most recent deal, which is a variant of the BRRR strategy that I'll refer to as BRRBNB (Buy, Rehab, Refinance, BNB). This has been a very good investment to us so far and I just wanted to share our story.
My wife and I bought a 1915 home in a historic neighborhood in Columbia SC for $55,000. The house was originally a duplex, but the city enforces a rule that a duplex that sits vacant for 12+ months in our zoning district, then it will be a non-conforming use and thus must be converted to single-family. Yes, even if there are two doors on the front of the house! Because we found out the home fell into this category (after our offer was accepted), and we were insistent that we wanted 2 income producing units, we began to solution for this issue. What we decided to do to comply with the city is to convert the home to a single family (removing one of the front doors), but keep the right side as a distinct space with a MIL suite with a small kitchenette and back entry. The only interior change required was a door between the sides. This interior change forced us to consider the short term rental market and how it could actually be a desirable feature for this market where a group may be interested in renting both sides like adjoining hotel rooms.
Our total cash into the renovations was extensive ($95,000). The house had 100+ feet of sill/termite damage, rotting joists under the bathrooms, no recoverable plumbing, no recoverable HVAC systems, no recoverable interior wiring (original knob & tube), and "dead" plaster falling off half of the walls. However, we noticed a few redeeming features during our inspections that gave us some hope over the 8 month renovation - 11' ceilings (hidden behind drop ceilings), original heart pine floors (protected under laminate flooring), original fireplaces/mantles, and desirable location (5 minutes to downtown Columbia). We did not hire a contractor for the work, we worked with subs/crews that would come in and help us complete each job. This method of doing things definitely required more of our time & sweat equity, but we were able to perform what amounted to nearly a gut rehab with high-end finishes for $60 / sf.
We finished the renovation and immediately staged / furnished both units. We probably spent around $10,00 staging both units and several very long weekends getting it ready. We then approached the bank to refinance, and the appraiser (I think partly due to my wife's keen eye for decorating) valued the home at $215,000. At the time we decided to just take out what was necessary to recover our investment in the property, which amounts to a 70% LTV ($150,000). Looking back we kind of are kicking ourselves for this decision, as this cash would have been helpful in leveraging for other investments!
There are a few really positive benefits to this strategy that I wanted to share.
#1 Federal Historic tax credits will ultimately return somewhere between $15,000 - $18,000 in federal income taxes next year
#2 Historic homes have character that short term renters value & will pay additional for in their short term rental experience
#3 Completely remodeling a home with high-end finishes will probably not pay off for long term rentals, but does seem to in the short term market. We can really make these homes nice, and not feel like we are wasting the money.
#4 Property taxes for investors in SC are ridiculously high (6%), and the home is still assessed value at our original purchase price ($55,000). The refinance does not trigger an increase in assessed value.
#5 Property is cash flowing much higher than my estimates, and in a B+/A- neighborhood (see below)
So for the numbers, I am still refining our pricing strategy, but so far I am seeing ~$4,000 in gross revenue per month on the entire property. This excludes the cost of cleaning, which I've outsourced and passed the fees directly onto the guests at time of booking. My expenses are $1100 mortgage, $250 utilities, $100 consumables, $150 miscellaneous expenses. So on net, we are seeing profits of $2400 / month between both units.
We implemented as much automation as we could (without seeming like robots). We have automatic door locks, automatic check-in / check-out messaging (AirGMS), automatic pricing tools (Outswitch), and a cleaning staff that is starting to learn how to use our apps to coordinate themselves. The biggest thing we are still figuring out is how to restock consumables and linens (that are damaged) without personally visiting the property. Once we figure this out, we'll be nearly 100% automated besides responding to initial inquiries & leaving reviews, which we feel substantiates our personal involvement at this stage.
All-in-all, we are very happy with our first real investment property, and feel like we've found a good niche. Hoping to hear from others who have completed or are considering a BRRBNB! Oh and please feel free to check out our listings to see our finished product: