Northeast Ohio BRRRR Complete!

Real Estate Deal Analysis & Advice
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Northeast Ohio BRRRR Complete!

Jen R.
Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes

Hello BiggerPockets community!

Wanted to share the details of our most recent BRRRR project in Cuyahoga Falls, OH (just north of Akron). We purchased this property off the MLS as a 2 bed/1 bath for $55,500. Total renovation (including closing costs) came in around $46,000 and took 3 months. The bulk of the renovation consisted of foundation repair, and costs to access the attic space in order to add a master suite. We now have a 3 bed/2 bath with estimated ARV at $140,000. A few before/after shots:

We are waiting on the cash-out refinance to close, which will give us $96,000, so we will be leaving about $5,200 in the house due to the bank's appraisal coming in a bit lower than expected. This is the first time we've ever had an issue with an appraisal; in reviewing the appraiser's four "comparable" sales, two of the properties were only 3bed/1bath homes, and the other two were un-renovated 3/2 homes that sold almost a full year ago. I'm disappointed, as there were at least 4 much more comparable sales within the past 3 months that would have given us the value we needed, but perhaps we just got stuck with a lazy appraiser this time around. In any case, leaving $5,200 isn't bad enough to refute the appraisal, so we are moving onward. Detailed renovation costs and rental numbers posted below:

Item Cost
Demo (includes removing kitchen wall & installing support beam) $1,500
Exterior paint & siding repair/replacement as needed $4,500
Roof repair $350
Foundation repair/basement waterproofing $6,200
Renovate existing bath (new tub & fixtures) $975
Build new staircase to access attic $3,600
Finish attic space (reinforce joists; install subfloor; insulate; install windows; framing; electric; drywall; add bathroom) $19,500
HVAC $2,000
Tile tub surrounds in both baths* $600
Electric (new fixtures/outlets/switches)* $400
Interior paint* $800
Flooring* $1,900
Misc carpentry (trim work, shiplap, floating shelves, etc.)* $575
Misc (landscaping, kitchen faucet, door & cabinet hardware, drywall repair, smoke detectors, etc.)* $600
Utility costs during rehab $200
Closing Costs $2,000
TOTAL $45,700
*DIY jobs; cost listed is for materials only

We have almost a dozen showings lined up this week after just a few days on the market, and hope to have a tenant selected over the weekend. Here are the rental projections:

Rent: $1,200/mo

Taxes: $1,600

Insurance: $625

Maintenance & Capex: $1,500

Vacancy: $720

Yearly Expenses: $4,445

Debt service: $625/mo 

Net Income: $2,455

Cost basis: $5,200

Cash on cash return: 47%

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Seth W. Ellsworth
Fayetteville, AR · Member since 2017 · 1 post · 1 vote
9y

Wow awesome job. A real inspiration, I just joined the BP community and I am looking to learn all I can. Thank you for sharing your numbers and experience! 

1Reply
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  • Seth W. Ellsworth
    Fayetteville, AR · Member since 2017 · 1 post · 1 vote
    9y

    Wow awesome job. A real inspiration, I just joined the BP community and I am looking to learn all I can. Thank you for sharing your numbers and experience! 

    1Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    Thanks @Seth W. Ellsworth! You have come to the right place to learn - there is so much great information on BP, and so many people willing to help one another out. Good luck in your endeavors!

    0Reply
  • Mike Walker
    Realtor · Fairlawn, OH · Member since 2014 · 35 posts · 8 votes
    9y

    Looks nice! Converting to a 3/2 from a 2/1 is a great way to increase the value (and rent too).

    0Reply
  • Austin Peck
    Fort Lauderdale, FL · Member since 2016 · 30 posts · 12 votes
    9y

    Very inspiring. Thank you for taking the time to share with us!

     An you elaborate or comment at all on the process of converting from a 2/1 to a 3/2? Would love to learn more about the process and what can be looked for in potential deals that could prevent me from doing the same, or qualities that make it a good candidate to add rooms/bath. 

    Thanks!

    1Reply
  • Brendan Taylor
    Real Estate Agent · Akron, OH · Member since 2017 · 73 posts · 48 votes
    9y

    Looks great. Love seeing Cuyahoga Falls on the come up with quality renovations. Thanks for some inspiration!

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    Thanks @Brendan Taylor and @Mike Walker!

    @Austin Peck - I can share a few things that we considered! In this house, we had our contractor inspect the attic joists and make sure they could handle the extra load (he determined we had to sister each joist with a 2x8). You also need to ensure that the remodel will conform with local building codes, as far as ceiling height, stairs, egress, etc. In our case, most of the houses on the street were built with the same footprint (and the same roof pitch), and already had finished attics, so we were pretty confident this wouldn't be a problem. You also need to ensure there is room for the new staircase; we ended up moving a couple of walls and reconfiguring the layout of the main floor to fit them in, but this isn't easy in a small house. You'll also need to consider the required plumbing runs - can you place the new bath above an existing bath, or will you need to build chase walls and run separate plumbing up in another area? Same with HVAC - we lost half of a closet in order to install new ductwork.

    When we bought the house, we had a backup plan of finishing the basement and adding the 3rd bedroom and 2nd bath down there along with a rec room. This option was a bit less expensive than the attic, but we wanted to add the square footage and gain more value. But, if your attic space cannot be used, this may also be a good, affordable option, depending on how much basement beds/baths are valued in your area. 

    Though we have finished attic spaces into bedrooms in the past, this was the first time we have completely built out a new attic space. Because of that, this was also the first house that we ended up hiring a GC (who does his own carpentry) for the attic job, which is why that cost is shown as one line item in the breakdown above. He did the carpentry work himself and took care of all the permitting and scheduling of electrician, plumber, HVAC, and drywall. 

    We specifically look for 2 bedroom houses with room to add a 3rd bedroom. I think oftentimes traditional buyers completely overlook these (they may only search for homes with 3+ bedrooms), so there is more opportunity to snatch them up below market value. Including the attic, this house is around 1,100 square feet, and in my experience, that is about the minimum square footage you need to get in that third bedroom.

    I hope that helps!

    3Reply
  • Account Closed
    Streetsboro, OH · Member since 2017 · 4 posts · 2 votes
    9y

    Thanks for sharing the cost breakdown of your project. Its awesome to visually see what the renovation costs matched up to the before and after photos. Great Job

    1Reply
  • Vivek Khoche
    Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
    9y

    @Jen R.- Congratulations ! Great first job. 

    Please try to get the off market or auction properties , the number would magically improve. Also follow a model to restrict the scope of work , budget and timeline. I would call it 33, 33, 33 rule, let us say for $100K ARV

    $33K is the cost of acquisition.

    $33K is rehab

    $33K is the profit.

    Any saving in first two would increase your profit , the last 33 could be a stretch since you don't have investor base.

    Good Luck Investing

    Vivek

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    @Vivek Khoche - thanks for your thoughts. I have not heard your 33/33/33 rule; we have found that the 70% rule is a pretty true rule of thumb for us, mainly because we want to be all in around 70% ARV to ensure we can refinance our cash out. Each of our projects have come in around that number, both on and off market deals. The last deal we did was also in an Akron Ohio suburb; purchase price was around $80k, rehab around $15k and took about 7-8 weeks. ARV at the time was approx. $135k.

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Jen R.:

    Hello BiggerPockets community!

    Wanted to share the details of our most recent BRRRR project in Cuyahoga Falls, OH (just north of Akron). We purchased this property off the MLS as a 2 bed/1 bath for $55,500. Total renovation (including closing costs) came in around $46,000 and took 3 months. The bulk of the renovation consisted of foundation repair, and costs to access the attic space in order to add a master suite. We now have a 3 bed/2 bath with estimated ARV at $140,000. A few before/after shots:

    We are waiting on the cash-out refinance to close, which will give us $96,000, so we will be leaving about $5,200 in the house due to the bank's appraisal coming in a bit lower than expected. This is the first time we've ever had an issue with an appraisal; in reviewing the appraiser's four "comparable" sales, two of the properties were only 3bed/1bath homes, and the other two were un-renovated 3/2 homes that sold almost a full year ago. I'm disappointed, as there were at least 4 much more comparable sales within the past 3 months that would have given us the value we needed, but perhaps we just got stuck with a lazy appraiser this time around. In any case, leaving $5,200 isn't bad enough to refute the appraisal, so we are moving onward. Detailed renovation costs and rental numbers posted below:

    Item Cost
    Demo (includes removing kitchen wall & installing support beam) $1,500
    Exterior paint & siding repair/replacement as needed $4,500
    Roof repair $350
    Foundation repair/basement waterproofing $6,200
    Renovate existing bath (new tub & fixtures) $975
    Build new staircase to access attic $3,600
    Finish attic space (reinforce joists; install subfloor; insulate; install windows; framing; electric; drywall; add bathroom) $19,500
    HVAC $2,000
    Tile tub surrounds in both baths* $600
    Electric (new fixtures/outlets/switches)* $400
    Interior paint* $800
    Flooring* $1,900
    Misc carpentry (trim work, shiplap, floating shelves, etc.)* $575
    Misc (landscaping, kitchen faucet, door & cabinet hardware, drywall repair, smoke detectors, etc.)* $600
    Utility costs during rehab $200
    Closing Costs $2,000
    TOTAL $45,700
    *DIY jobs; cost listed is for materials only

    We have almost a dozen showings lined up this week after just a few days on the market, and hope to have a tenant selected over the weekend. Here are the rental projections:

    Rent: $1,200/mo

    Taxes: $1,600

    Insurance: $625

    Maintenance & Capex: $1,500

    Vacancy: $720

    Yearly Expenses: $4,445

    Debt service: $625/mo 

    Net Income: $2,455

    Cost basis: $5,200

    Cash on cash return: 47%

     Looks good! Great job!

    1Reply
  • Chris Walsh
    Rental Property Investor · Cleveland, OH · Member since 2016 · 31 posts · 5 votes
    9y

    Nicely done!  How did you fund the rehab? 

    Thanks!

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    @Chris Walsh - we funded the purchase & rehab with a combo of our own reserves and private money, then refinanced with a local bank.

    0Reply
  • P.J. Bremner
    Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
    9y

    @Jen R.

    Nice work!  I noticed in some places, they do not allow you to convert the upstairs attic into "legal bedrooms".  I guess you're allowed to finish the area, but sometimes it will not be allowed in the total square footage calculation?  Can you elaborate on when you're actually able to convert an attic into a bedroom and when the city says "nu-uh"?

    Also, for your refi did you end up using a Fannie/Freddie loan or a portfolio loan?  I would be curious to hear about the financing side as I am currently closing on 2 duplexes in Lakewood and would like to have a few more options for the refi at my disposal.

    Final note, how the heck did you get the taxes so low?!  One of my duplexes is closing for around $80k and the taxes are over $4k LOL.

    0Reply
  • Tyler Lyons
    Grand Rapids, MI · Member since 2015 · 45 posts · 13 votes
    9y

    Great looking project @Jen R.! Really nice that you were able to pull almost all of your investment capital out of the project and still have a unit to provide you with over $200 / month in cash flow.

    Were you able to get a cash out refinance at appraised value after only 3-4 months? I talked to several banks around me (West Michigan/Grand Rapids area) and even the small ones seem to have a one year seasoning requirement before they allow doing a refinance at appraised value. Could you share some more info on what your refinance looked like and how you were able to get appraised value so early on in your ownership of the property?

    0Reply
  • David AcostaPro Member
    Wilmington, NC · Member since 2014 · 208 posts · 144 votes
    9y

    Looks great, @Jen R.!  

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y
    Originally posted by @P.J. Bremner:

    @Jen R.

    Nice work!  I noticed in some places, they do not allow you to convert the upstairs attic into "legal bedrooms".  I guess you're allowed to finish the area, but sometimes it will not be allowed in the total square footage calculation?  Can you elaborate on when you're actually able to convert an attic into a bedroom and when the city says "nu-uh"?

    Also, for your refi did you end up using a Fannie/Freddie loan or a portfolio loan?  I would be curious to hear about the financing side as I am currently closing on 2 duplexes in Lakewood and would like to have a few more options for the refi at my disposal.

    Final note, how the heck did you get the taxes so low?!  One of my duplexes is closing for around $80k and the taxes are over $4k LOL.

     Thanks, P.J. - I will give your questions my best shot! We have not yet run into any issues with finishing the attics, as this is very common practice in this area. In this neighborhood specifically, the majority of houses on the street already had a finished bedroom in the attic, so we were pretty confident we wouldn't run into any issues. The biggest thing we check is to make sure that we have enough ceiling height for it to be considered habitable square footage. When we started, I made a few friendly trips to the zoning department to talk through the requirements in that regard and make sure I understood anything that the city might require or see as a red flag. Now that we are working with a contractor, he takes care of any permitting issues for us.

    For this refinance we went with a portfolio-type loan from a local bank. The terms are not as good as a conventional mortgage, but in this case, we needed our cash out before the 6 month mark, as we had another rehab project going on. If we had waited until the 6 month mark, we could have cashed out based on ARV into a conventional 30-year mortgage with a broker that we work with in Fairlawn. I would be happy to pass on his contact info (shoot me a message if you're interested).

    Taxes vary greatly from city to city around here, and Cuyahoga Falls isn't nearly as bad as some other areas. We do not own any properties up near Cleveland, but I have heard the taxes are a killer. I wouldn't be surprised if our taxes increase in the years to come, based on the fact that we went from a 2/1 to a 3/2. However, I think this is an area where the BRRRR strategy provides a great benefit - the fact that we purchased at such a low price gives pretty good ammunition to dispute any major valuation change. We just had another of our properties re-evaluated this year for taxes, and we saw an increase of about $200/year (nothing we can't make up for with a slight rent increase).

    Hope that helps!

    1Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    Thank you, @David Acosta and @Tyler Lyons!

    Tyler - yes, for this property we worked with a local portfolio lender and were able to cash out based on appraised value with no seasoning requirements. However, the loan is a 3-year ARM amortized over 20 years, so we will be refinancing again at some point over the next few years. We also have a mortgage broker with whom we have worked on several occasions, and he is able to refinance us into a conventional 30-year mortgage based upon appraised value after 6 months. Before 6 months he offers delayed financing, which allows us to cash out the full purchase price + closing costs, but not the repairs. Both of these connections came through recommendations we received by networking with other local investors and realtors, so I would recommend that you keep asking local colleagues if they have any banks or lenders to whom they could refer you. Good luck!

    1Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y
    Originally posted by @P.J. Bremner:

    @Jen R.

    Final note, how the heck did you get the taxes so low?!  One of my duplexes is closing for around $80k and the taxes are over $4k LOL.

     I also wanted to note, if you are purchasing the duplex at a price that is significantly below the auditor's appraised value of the property, you can file a complaint and try to get the appraised value lowered. Each county has a different process for this (in Summit County you have to file the complaint by March 31 each year), but the auditor's office should have a form to fill out and submit along with documentation to support the lower valuation.

    1Reply
  • P.J. Bremner
    Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
    9y

    @Jen R.

    Yes this is great advice, I actually ran across someone on BP last week that referred me to a company that does this for you. They are a team of lawyers and they charge something like 30% of the reduced tax that they are able to save you. For someone who doesn't know the local laws and processes, this seems like a no-brainer! I had estimated that on one of my properties, the taxes would reduce nearly $150 / month just because of the tax reduction down to the purchase price. That's basically turning a duplex into a triplex as far as cash flow goes ($300 / month to $450 / month without any added investment). I think the property tax reduction is tailored to the BRRRR strategy : )

    0Reply
  • Dan Marzec
    Real Estate Investor · Stow, OH · Member since 2016 · 12 posts · 11 votes
    9y

    Congratulations @Jen R. !  How many BRRRRs have you now completed?

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y

    @P.J. Bremner, you can certainly pay a lawyer to file the complaint if you feel more comfortable that way or don't want to take the time to mess with it yourself, but if you do a search for "cuyahoga county ohio property tax complaint", the first link that comes up will supply the form that needs to be completed and submitted. It's a pretty straight forward process: basically just supply the purchase information, your plans for the property or improvements that you have made, and include any supporting documentation, such as HUD statements and appraisals. You will likely get a mailed notice that your request will be considered at an upcoming hearing, but I have never actually attended the hearing and have still always been successful at getting the reduction. Either way, as you mentioned, it can definitely be worthwhile!

    0Reply
  • Ty L.
    Investor · Northern Virginia · Member since 2017 · 159 posts · 59 votes
    9y

    Thanks for sharing. Great details on cost. Congrats!

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y
    Originally posted by @Dan Marzec:

    Congratulations @Jen R. !  How many BRRRRs have you now completed?

    Thanks @Ty Little and Dan!

    This was our 3rd BRRRR, and we are currently renovating #4.

    0Reply
  • Tony Zmij
    Investor · Miami, FL · Member since 2017 · 5 posts · 1 vote
    9y

    Hello Jen:

    Great Job and thank you for sharing! We are currently rehabbing a house in Ohio and I was curious on the attic addition.

    Were you required to have a door and closet to have it considered a bedroom?

    Thanks in advance!

    Tony

    0Reply
  • Jen R.
    OP
    Investor · Tallmadge, OH · Member since 2015 · 259 posts · 275 votes
    9y
    Originally posted by @Tony Zmij:

    Hello Jen:

    Great Job and thank you for sharing! We are currently rehabbing a house in Ohio and I was curious on the attic addition.

    Were you required to have a door and closet to have it considered a bedroom?

    Thanks in advance!

    Tony

    I believe in order for it to be counted as an official bedroom it must have a door and two means of egress. I'm not 100% sure on the closet requirement; I would have to revisit local codes. I know we have been told by realtors that the room must have a closet, but I have challenged that, as in some older homes, closets are non-existent. Regardless, the closet makes sense to add as buyers/tenants will expect it, and in an attic it's super easy to add one in the knee wall space without taking away any square footage from the room. Also, the door does not have to be located in the attic (we have other homes where the entire attic is one large bedroom with the door located at the bottom of the staircase). In our area there are also minimum square footage and ceiling height requirements. For example, the room must be at least 70 sq ft, with no one wall being less than 7'.

    0Reply
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