Case Study: My BRRRR Deal That Went Sideways (& What I Learned From It)

by | BiggerPockets.com

In my last two articles, I described a case study when a BRRRR (buy, rehab, rent, refinance, repeat) deal goes right and goes really, really right. This week I’ll turn to a deal that’s not quite as fun to relive—a BRRRR deal that went sideways and what you can learn from it.

Our Property Criteria

First, we’ll revisit our property criteria:

  1. Our total cost into the property will be less than 75 percent of the ARV, allowing us to refinance out our entire investment.
  2. The property must cash flow with a fully financed 8 percent interest only loan on it (this is what we usually get from our private lenders).
    • Note: If a property doesn’t meet this qualification, we would likely flip the property.
  3. The property must be in at least an OK neighborhood. Blue collar and lower end properties are fine, but we are not looking to buy D properties as rentals. There are just too many headaches and problems.
    • Note: If a property doesn’t meet this qualification, we would consider wholesaling the property to an investor who specializes in such areas.

The thing to note about such criteria is that it is obviously based on a prediction of what is to come. No one is omniscient. We are trying to make the best, most informed guess we can, but it doesn’t always work out like planned. I know of almost no real estate investors who haven’t lost money on a deal at sometime in the past.

This leads us to the first point. While the BRRRR strategy is a great strategy and, if done right, can make it so you own a cash flowing property with no money in it, it’s still important to have some sort of cash reserve.

This cash reserve could be savings, or it could be from a partner. But most no-money down strategies for investing, in practice, become low-money down strategies. If you don’t have any money or have very little, a better strategy might be to buy a 4-plex with an FHA loan and live in one unit while renting out the other three. Or perhaps you could find a money partner (they bring the money and you do the work). I discuss this more here if you’re interested.

Our average all in price is 81% of the value. Our goal is 75%, but we have decided to go more for volume, so we have taken deals we might not have otherwise done. We are in a situation where we can do this. If you are more stretched for cash, you need to be all the more picky.

The Sideways BRRRR—Finding the Deal

We found this deal using one of our secondary tactics. It works by just making really low offers on HUD homes that come up on Hudhomestore.com when they become available to investors (after 30 days). We start at 20 percent of the list price and move up 1 percent per day. Every once in a while, you get one.

Related: 3 Critical Keys to a Successful Refinance (for the BRRRR Strategy!)

If you’re interested, Travis Daggett discussed this strategy in detail on the BiggerPockets Podcast sometime back. It worked a lot better in the heyday of foreclosures than today. And while we got a few really good deals out of it, unfortunately this was not one of them.

The Property

This property is a 3-bed, 1-bath home located in a decent part of Independence, MO. We got it under contract for $38,127 (you get those kind of odd numbers when going up 1 percent at a time).

The comparables made it look like its value was around $85,000 (which is what it eventually appraised for). The problem with this one was all in the rehab—and more specifically, the due diligence.

My anticipated rehab was approximately $25,000. The items included:

  • Refinishing Hardwoods
  • Painting Upstairs
  • Carpet and Vinyl
  • Appliances
  • Minor Siding Repair
  • Some Sheetrock Repair
  • New Electrical Panel
  • Etc.

However, I made several major mistakes that caused the project to balloon in cost.

1. Becoming “Attached”

We’ve backed out of deals we’ve gotten under contract in this way before, but the fact we had it under contract did add a bit of a feeling of commitment. Also, it’s a beautiful, old home with a lot of charm. But we don’t buy pretty houses; we buy good deals. As hardened as I am to that, I think those things might have tilted me over the edge to purchase a house that was on the edge to begin with.

Don’t become attached to a property. It’s just an investment. And never be afraid to walk away.

2. Missed Items

The first problem was I missed a key item. That item was the sewer line in the basement. Outside the house was fine, but it was collapsed under the basement floor, and we literally had to jack hammer it up and replace it. We normally scope the sewer lines, and we did on this one too. In fact, after reviewing my notes, I’m still not sure how I missed this. But nevertheless, it was missed. Always scope the sewer lines in old houses, folks.

2. Overoptimistic About What Could Be Saved

If you noticed, I only had painting the upstairs on the scope. That’s because the downstairs paint was almost fine. Almost being the key word.

Touching up paint when you don’t have the original color is quite difficult. And upon closer inspection, there were just enough dings and scratches to merit painting it all.

This is one reason to standardize your materials. Use the same paint colors over and over again because then you can usually touch up turnovers. But be very cautious about thinking you can touch up houses that are close but not quite right. Yes, you can go to Home Depot or Sherwin Williams and have them match a sample, but in my experience, it rarely looks right.

3. Not Factoring Enough for Age

Older houses are usually going to require more work. They also have more “endless money pit”-type situations.

On this house, it had to do with that “minor siding repair” that just kept going and going. In addition, the “some sheetrock repair” was actually “some lath and plaster repair.” Older houses generally have lath and plaster, and while it’s fine when it’s in good shape, lath and plaster is much harder to patch than sheetrock.

Finally, some of the old galvanized plumbing had to be replaced. Sometimes you can get away with leaving the galvanized plumbing, but galvanized pipes tend to corrode, which seriously reduces water pressure. So it’s something to look out for.

Needless to say, the add-on list for this property grew quite a bit during the course of the rehab.

4. Scope Creep

One the most important reasons to create a thorough budget and scope of work up front is to avoid scope creep. It’s a common problem when a project is not well defined; it just grows and grows. And rarely are those additional costs worth it.

In this case, we decided halfway through to add a half bathroom downstairs. It added a lot of convenience to the house, but it also added a good amount of costs and, in the long run, probably wasn’t worth it.

The Results

The house ended up looking beautiful.

The numbers weren’t as great, though, and it was hurt all the more by a long lease up and the fact that we were slow to get started on the rehab because of glut of projects we got all at the same time. (You need to manage deal flow, too.) The total rehab ended up going over $40,000, or about 60 percent above my original $25,000 budget.

Related: How to Get Poor Quickly Real Estate Investing: A Walk Through a BAD Deal

The property ended up appraising for $85,000 and we’re into it for over $78,000.


If you add our closing costs, we’re in over $80,000. So we’re all into the property for close to 95 percent its value. It could have been worse, of course. We have been upside down before. But this is definitely not how you do BRRRR right.

What to Do When a Deal Goes Sideways

What comes next all depends on your situation, of course. For us, we have the resources to leave money into this property and just move onto the next one. The property rents for $995/month. So, its numbers look as follows:

Rent: $11,940

Vacancy: $1,194 (10%)

Expenses: $4,000

Debt Service: $5,052 ($63,750 loan at 5%, 20 year amm)

Cash Flow: $1,694/year

This isn’t great, especially when you have to leave over $15,000 in the property, but it’s not a killer either.

If you don’t want to leave that kind of money in the property, obviously you should just sell. Although on some deals, you may lose money, which, again, is why it’s important to at least have some cash reserves if you are going to do the BRRRR strategy.

Finally, learn from what went wrong and don’t get discouraged by it—although, as they say, a wise man learns from his mistakes. A wiser man learns from the mistakes of others. So, be the wiser and learn from mine.

[Editor’s Note: We are republishing this article to help out our newer readers.]

What deals-gone-bad have you experienced lately?

Let me know your stories with a comment!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

45 Comments

  1. Curt Smith

    Hi Andrew I think your rehab costs are excellent for what you delivered. But what is that $13k maint cost? If that is the cost of your purchase + rehab loan?? That’s very high. Here in Atlanta there’s lots of hard money at 3% and 12%, would be cheaper than your deal.

    But the best way to solve this problem is to put long term financing on the house in the first place. I suspect you’d agree you could have predicted this tight situation up front.

    What is that $4k expenses? Surely landlord insurance and taxes are NOT $4k up there? Can’t be. That number doesn’t make sense either. You won’t have any maintenance since you just did 100% rehab.

    Then instead of renting do rent-to-own where min time for the tenant can get financing is 12 mo so you are into long term cap gains. But typical time to finance for tenant buyer is 2yrs so you get more rent profit. You sell this way at top price and without an agent. You can set the option price “price to be determined by an appraisal” to allow your selling price to rise with the market. Most investors pick some higher than market price. But we all know its the bank’s appraiser who sets what the bank will finance.

    • Andrew Syrios

      The $13,000 in “maintenance CBs” are charge backs. It’s a charge for our on staff construction crew’s time at the property. So the line item really should be “Construction CBs.”

      We get the $4000 number as an estimate on other properties and its meant to be projected out in the future. It includes taxes, insurance, maintenance, turnover costs, recurring capital expenses, utilities (during turnover), administrative and legal (such as potential evictions) and marketing. It also includes a management fee, even though we self-manage. But other investors would have to factor that in and we do need to account for our payroll and overhead expenses.

      The first year will likely not be $4000 and much of that $4000 will be the management fee that we aren’t really paying. But we want one number that will be the average going forward. And based off of similar properties we own, that’s the general estimate we came to.

  2. Erik Whiting

    Andrew, thanks for sharing your story and the numbers. This is a refreshing view for me as I’ve only done one BRRR so far, and although it worked out better than yours (I was “all in” at 73% LTV and was able to get all my money back out) I definitely missed my numbers. The floor I thought was only bad in the kitchen was bad in 2 other rooms too. Ended up redoing the subfloor in the entire house to get it all level: it was cheaper that taking out the bad areas! It cost $1500 to take out a tree I thought would only run $800. Stuff like that. A lot of “nickle and dime” items in addition to the floor brought me in about $3500 over budget on a project that I estimated at $10K in rehab, and that was with a 15% “Oh crud/contingency” factored in. So while I didn’t do badly… I still was disappointed that I missed my numbers by almost 33%.

    I can’t say I’m miserable (again, it worked out ok, just not GREAT like I was hoping)…but it helps me take courage to see that even someone who has done this several times can still make mistakes and learn from them, and be willing to help me learn. It’s hard to admit our mistakes, even more in front of our peers. So I appreciate you doing this.

    • Brandon Phillips

      Yes it is slightly better than 10%, but with a lot of work. You can stick your money in a low cost index fund forever and make close to that with zero work. Just imagine all the calls for maintenance, meeting applicants to show them the house, vetting through applicants, tenant turnover (cleaning/painting), etc. All of that for $1600 a year, assuming you don’t need to evict the tenant at some point. If you compare your real estate investments to CDs and Bank account then you will always win.

  3. Lucas Mills

    Hi Andrew –

    Great post. When I read “always scope the sewer lines in old houses” I was taken aback just a bit. This is the first time I have ever heard of this (granted, I’ve only been studying REI for a month or so).

    My questions are as follows:

    1. What is defined as an “old” house? I.e., when should I scope the sewer lines and when should I not worry about it?

    2. Are there any resources (that you’ve written or otherwise) which discuss everything that one should be aware of and check in x y or z circumstance? I would like to read over an exhaustive list of potential issues with homes so that I can do my due diligence correctly.

    3. How do you know what to check when you’re looking at a home that doesn’t appear to be a rehab project? Should you still check everything on the list referenced in my previous question?

    4. As it relates to scoping the sewer lines or any other kind of checks like this, when do these occur in the process of finding a home and making an offer on it? Are there checks done when the home is inspected AFTER an offer is made/accepted and is the offer contingent upon these checks?

    • Andrew Syrios

      1. I think anything older than 1980, maybe even 1990 (I own almost nothing built in the 80’s) probably should have the sewer line checked.
      2. Check out J. Scott’s book The Book on Estimating Rehab Costs: https://www.biggerpockets.com/store/store_front/. This blog post might help too: https://www.biggerpockets.com/renewsblog/2015/03/18/due-diligence-guide-houses/
      3. Virtually anything you buy will need at least a little work. We do a systems check on every item in each house before renting out (i.e. making sure each window opens, each outlet has power, each faucet works, etc.)
      4. Scoping the sewer line or any other inspections would be done after you have the property under contract during the inspection period (which is usually the first 10 to 15 days of the contract) while your earnest money is still refundable.

    • Great article. I’m curious how you check the sewage line – I never thought of that. Do you need to call an expert in or can you eyeball it? Do you typically get a full inspection?

      I do have a hard time walking away from a deal I have any money in but sounds like in that situation, you would have been better off so thank you for that tip.

      I am curious how you make your list of repairs and cost estimates. Would you discuss that more?

      Thank you in advance for your comments

      • Andrew Syrios

        There are companies that will run a camera down the line and evaluate it. You can watch it with them and get a video of it. Inspections usually cost $150-200. These inspections can also be used for negotiating with the seller.

    • Michael Deacon

      I always put a camera through the sewer regardless of age. Tree roots, collapsing driveways, etc. can destroy a sewer line. $200 is cheap piece of mind. My plumber will apply it toward repairs. Tenants will be very hard on your plumbing so it needs to be in good shape. Even if the sewer is bad it is not necessarily a deal breaker. Get a quote for a trenchless replacement from your plumber and try to negotiate a lower price with the seller.

      Great article.

  4. Gregory Shelton

    Great post Andrew. When I saw your story and you mentioned independence Mo. I thought of myself. My wife and I brought a property in Kansas City Mo. in 2014. We bought it at a Real estate seminar which turn out to be a mistake.We believed and trusted them to do the due diligence and they fell short. The property was over priced, the management company they provided was a joke, and the rehab was laughable. This property was suppose to be a turn key property.
    After removing the bad tenants that ended up trashing the house and after going through 2 property managers I flew to Kansas City to finish the job that deadbeat contractors started and did not finish. It took about a year to get the house on track.
    The latest PM found a paying tenant who has been in place the past year or so. The tenants pay late each month but they pay every month. We recently took out a equity line of credit to buyout the note. Previously we had a 12% principal only note provided by the original company we bought the property from. Right now we net 300 dollars a month. The property recently appraised for 48,000. We paid 62, 000 for the property.
    We want to buy another property in Kansas City and could use some suggesting in how to finance the next property. Hopefully without using any of our cash. Thanks guys for any suggesting and guidance.

  5. John Daley

    I applaud your transparency and it’s refreshing to hear the ‘other’ side of real estate investing. I know it doesn’t sound that bad to most casual investors to ‘break even’ on a deal, but when its your source of income, your business requires overhead to operate, and you have a finite amount of cash capital to work with, breaking even can be a business killer if you do it too often.

  6. Viola Enfield

    Thanks Andrew! Your post contained very helpful insights as did the commentary on the post. Thank you for this gift to the Bigger Pockets investing community. I am brand new, and I’m trying to absorb all the wisdom I can!

  7. Tony McCargar

    That sewer issue is a good one. My daughters house was built in 1945 and they used a type of fabric sewer line that had a 30 year life expectancy, but who pays attention to that? LOL. Hers ran under a room addition so when I went to visit I had 3 different plumbers out; 2 said to saw cut and break out the concrete then they’d come in and re-do at 14k – 16k. The 3rd guy has a guy that used to be in the oil and gas business and had a piece of equipment that inserts a tip into the old line , spreads it and pulls a new plastic line behind it. Fantastic thing, no concrete, no digging, no dump run and fees. Whole thing was $4500.00 and took a half a day. Incredible! Don’t know if anything like that exists anywhere but in the west but a guy could make a mint if he wanted to invest in the equipment. By the way your place looks real nice. I really battle getting attached all the time. Having been a design build contractor, cabinets, trim, etc. Its hard to break the habit.

  8. Michael Thompson

    Thanks for a terrific article. I have been surprised by water leaks and expensive repairs. But I’ve never scoped out the sewer line in any of the houses that I bought in the past. I’ll definitely do it in the future. It’s always cheaper to learn from someone else’s mistakes!

  9. costel a.

    Oops! I’m closing tomorrow on a house that looks exactly as this one, a Victorian house built in 1930, all walls are plaster (I hate it), good structure, but it needs a total rehab. Probably my deal is a little bit better than yours, I bought it for $50,000, it has 6 bedrooms, one full, one half bathroom, has 2,500 square feet and the ARV is around $230,000. A contractor friend on mine roughly estimated a minimum $75,000 for the rehab, probably more in the $85,000 area.

  10. Tim Sabo

    Andrew,

    Thank you for this post: we thought only we had these type of issues, which become magnified exponentially in a poor-performing or stagnant real estate market like here in south west PA.

    Here you will find lots of surprise fun (mandated sewer projects; 40 year old furnaces or frozen and cracked radiators connected to burnt-out boilers; single-pane wood frame windows in snow country; inadequate or completely missing or worse, outdated insulation; gutters broken by ice damns; etc.) but you also get the added challenge of really tight margins between purchase and sales price coupled with severely limited number of qualified and interested buyers. Oh, and did I mention a lack of qualified contractors-due to the really sour economy, all in a town with 1100 blighted properties and county with over 1200 tax sales properties.

    Obviously not the prime ‘location, location, location’ for most real estate investors, but I am smiling tonight after reading the wonderful lessons you learned from all this: I, then, must be the smartest guy in real estate. Thanks for being so honest, because far too often people think working in real estate is like one of those silly TV shows, and you have showed them what some of us real flippers have to do every day to survive.

  11. Jerod Smith

    Great post! Can you tell me what typical financing your getting on the refi? And how to get it? It seemed that you implied a 100% loan. I’m pretty new to REI but have only found finance options at 80% of the newly appraised value.

    Thanks!
    Jerod in Oklahoma.

  12. William Carroll

    two questions (i did have to read all the comments, so sorry if this was asked and answered).

    1) do you scope your own sewer lines or do you pay for that service via home inspection or a plumber?

    2) I don’t typically have a lot of detail in my post-renovation reporting. What software are you using that the screenshot was taken from and does it do receipt scanning and management as well? Or did you fly this into a spreadsheet, and if this is excel, where are the categories and IDs coming from?

    great blog post BTW, thanks!

  13. Cliff Harrison

    Hey Andrew, I think we’ve all had projects like this. Fortunately it still cash flows. How much did the sewer line replacement cost? You noted $99 in the construction plumbing category so I’m sure it is somewhere else. I’m about to do a similar repair. Thanks for the informative post! Cliff

  14. Alex Capozzolo

    Great post. Goes to show that even after 500 units there is still more to learn ! I love the way you broke down your numbers and still accounted for potential ‘future’ property management expenses; smart. Keep it up and good luck on the next one !

  15. Ronda R.

    Make sure to check with the water/sewer company where you are buying before paying a plumber. Some will do it for free. I have had 5 done, free of charge, so far. It is done during the inspection period so that you can still back out.

  16. David Roberts

    Great article.

    I just went through two of these after coming off two great deals.
    First one i had to fire 2 contractors and i had overpaid one of them (lawsuit pending). It was a HUD house also. I got a little lazy after the two great deals and didn’t go back to the HUD house after i had got it in contract. So, i missed 3k worth of repairs, then as we dug into the house, every valve just about leaked. Everything that went wrong did. I ended up into ut fur 87% of ARV. But like you, i am able to leave the money in so I did on this one.

    On tree 2nd deal, I used the same contractor that got the 1st debacle done for me. Should have been 3 weeks rehab and it took him 13. Big, big arguments, plus he was a true GC and had overhead so he was expensive as hell. A week after the 2nd deal closed the great exchanger cracked. I ended up 89% of ARV into this one. Decided to sell it didn’t want to tie up that much money between the two bad ones.

    It was a lesson for me that true GCs are too expensive, do not pay contractors ahead of time, and don’t get cocky. Walk thru the house very thoroughly!

  17. Hollis Cook

    Does anyone know if there’s a good way to print this? I’ve tried a number of ways, but info from the sides covers the text. I’d like the article for my knowledge book, but can’t print. Suppose I could try my tablet and read in the book form, but if there’s a way from here anyone knows, please let me know. I can be DM’d if anyone would like to send me a Word link. Thanks!

  18. Susan Maneck

    The house is really gorgeous, though. But tell me how do you go about checking out sewer lines before purchase? I’ve had problems with those as well and in Jackson you have to pay the city around $1200 if the tie in goes bad.

    • Ronda R.

      Susan, call the city water department and ask if they will come out and scope the lines. Some will do it for free. They need access to the sewer from inside the house, (usually the basement). They run a camera through the line until they hit the tie in to the city or until they hit blockage. You can watch over their shoulders and see the condition of the line. They will also give you their assessment. I had to have the sewer line in one of my houses scoped 3 times. After the city scoped it and found some blockage they told me to have a plumber come out and clear it out. They cut through the lines, supposedly to the tie in. City came back out and re-scoped and found more blockage. Plumbing company came back out and re-cleared and told me I needed to replace the sewer line to the street. Gave me a “limited time offer discount”. City then came back out and re-scoped. Told me the line was in good condition. They saved me thousands of dollars.

  19. xavier mc holder

    Awesome post. I recently attended a 3 day seminar on real estate investing and the strategy they suggested we utilize to get started was not wholesaling as i have heard many other times but by Flipping foreclosures, would any of you suggest the same for an individual with little cash reserved? and if not are you aware of any other investment strategies that i should apply ?

  20. John Murray

    I specialize in BRRR here in PDX Oregon. The mid-century houses are very well built (better than any built post 1980). The downside is cast iron drain and galvanized supply plumbing. I purchase about 20-30% below market, renovate and rent out. I do all of my own work and make about $250K per year on BRRR and pay little taxes on passive income. Most cannot do this. The rust belt does not seem like a good area for BRRR but PDX Oregon is stellar.

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