The first time we visited Lincoln, Nebraska Jeff was still in the Marine Corps and we were checking out the area to see if it might be the right fit for our future. We just happened to be in the car with our Realtor friend, on the way to look at a 7 plex when this dumpy 5 bedroom house hit the market, listed at $50,000. We were a little early for our showing so we swung by to take a look. It was everything you want in an investment property!… Kinda.

It was a 5 bedroom, 1.5 bath 1900 sqft 100 year old house. It had nice big bedrooms and a spacious living and dining room. It was close to the university and had plenty of off street parking. BUT it was absolutely disgusting, there were dead mouse carcasses and poop everywhere, the carpet looked like multiple people or animals had died there, and of coarse it smelled like money. (Which is to say that is smelled like pee, and poop, and death, but that scares most people away.)

When we originally saw the house our knee jerk estimate was that it would take $50,000 to fix it up. Every component of the house needed to be replaced. Since we didn’t really know Nebraska prices for supplies and repairs, we went to Home Depot and Menards and shopped around for the things we would need. That is exactly what not to do! What happened is we looked and saw a toilet for $100 so we’d put that down and a sink, $250, put that down, furnace $1100, bathtub and surround $600 etc. However we didn’t add the hoses and the fitings and the little stuff that you need to install all of these items, but more importantly than that we didn’t take into consideration that we didn’t know how to install a furnace, or a bathtub and surround, or at least half of the other things that needed replacing. So we chopped our repair estimate down to $30,000 and wrote an offer on the same day it hit the market for $50,000 to be purchased with a conventional loan and 20% down.

We quickly found out that there were multiple other offers, and the listing agent asked for highest and best. We decided to raise our offer to $55,000 (conventional financing) and with our offer we sent a cover letter. Now you are probably saying oh brother, how cheesy, or how manipulative, and you’re right it is a little cheesy and manipulative but it’s also pretty effective. It adds a face and a story to the offer. The cover letter had a picture of our little family, a really brief background and contained assurances that we knew how bad the condition of the house was, and that although we were offering to purchase with a conventional loan we were fully prepared and excited to do a ton of work and would not be asking for any repairs to be completed during escrow. When all the highest and best offers were in, the listing agent came back to our realtor and asked, “Are you sure they can’t do cash?” We probably could have but we had been told by our mentors/pastors/friends that we were the kind of people who kick down doors, and that if we were going where God was leading us then we shouldn’t be kicking down doors. So we felt offering all cash was kicking down doors and kept it as a conventional loan offer. Shortly after we left town, we got the news that they had accepted our offer! We did all the inspections, escrow, and closing long distance.

Seriously though, who could say “No” to that!

I (Megan) flew back out to Lincoln a couple weeks after closing to get the project started and to at least ready the house for it to sit all winter while we packed up our life in California and made our way out. Apparently during the 6 weeks since I had last seen the house, it had rained constantly and the wall that had been bowed slightly when we originally saw it was significantly worse. So we ended up having 1 wall of the house completely rebuilt.

While I was there, I had our plumbers replace all the old supply lines with PEX. They also had to redo some sewer lines (they ran uphill and they ran through an uninsulated crawlspace so those lines became poopsicles in the winter.) They also moved the plumbing for the washing machine down to the basement, and installed a shower in its place to turn the half bath into a 3/4 bath. I got a ton of bids to replace the roof and gutters (because I was blown away by how expensive it was) and I got that job scheduled.

While the contractors did their parts, I used that time to demo the carpet, kitchen, and the second floor bathroom. Once everything was out, the house still smelled terrible. All the cat pee had soaked into the hardwood floors under the carpet, so I rolled a thick layer of Kilz oil based primer over them, which sealed it all in and fixed the smell issue.

I also went around and introduced myself to the neighbors. This is so valuable. I just let them know that we’ve purchased the house and we are going to be fixing it up and making it really nice, and apologize in advance for the noise we’ll be making. This opens up lots of good conversations about the previous situation (they’re usually really excited to know that they will have normal neighbors now) and they often have knowledge about other neighbors that may want to sell. I also gave a couple of the owners that showed pride in their house my contact information and asked them to keep an eye on the place while I was gone. A couple months later I got a call from one of the neighbors letting me know that my front door was open. Turns out someone had kicked in the back door of the house, stolen the approximately 10’ of copper pipe (the only 10’ that wasn’t switched to PEX) and walked out the front door. At least the neighbor knew how to get a hold of us so we could get someone to re-secure the house until we returned.

Once we moved to Lincoln for good, we quickly got back to work. We had the plumbers back out to replace the stolen copper with PEX, replace the water heater, and install a new tub and surround in the second floor bathroom. We had a new furnace installed, and we finished the demo of the tile in the kitchen. We also got a wall framed to create a legitimate 5th bedroom that you didn’t have to walk through to get to the other bedrooms. We hired someone to replace all the windows and worked a deal to get a cheaper price if Jeff helped with the install. That worked out great because we were able to save money on the project and also got to learn how its done. We also had to get a lot of drywall work done. The kitchen and dining room had huge chunks of a hundred years worth of layers upon layers of wallpaper falling off the wall. So we decided to overlay some and scrape and skim over other parts. There were also a few patches on the ceiling that needed drywalled, as well as the new bedroom wall and some finish work around the new tub/shower surrounds.

We are a family business! Throughout this project so much of our family came out to help us get parts done. My Dad, Mom, Sister, and Uncle Kermit came during the painting phase. We blew through the entire prep and interior and exterior paint in about a week. We never could have done it without them. You don’t really realize how big a house is until you go to prep and paint the outside of it. I think we are going to try to buy shorter houses from now on. Even our daughter was right there helping out. Once the painting was done we just had to install kitchen cabinets and countertops, flooring, trim, fixtures, etc. We also graveled the back of the property to make a large off street parking area for the tenants.

After everything was said and done we ended up putting $55,000 into the repairs of this house. We came in significantly over budget, however I feel so much more comfortable with our capital expenditures going forward on this house because I know that everything is brand spanking new. And even though we spent $55,000 on repairs, that put us all in at $110,000.

When the project was almost done, we started marketing it and found tenants before we were even finished with the rehab. It rents for $1700 per month and the tenants pay all utilities including water and trash. We currently pay lawn care, which we factored at $30/month, which is accurate but if it is a harsh winter like it is currently, snow removal can quickly add up to more than that. Once the house was rented we began the refinance process, during which it appraised for $125,000. One thing we did to get the highest value on our appraisal is we gave the appraiser a list of all the repairs that were made with costs for the repairs. We also supplied him with comparable sales from the area, and obviously chose the best ones, and gave him the lease so that he could see the income potential of the house. It also turned out that the appraiser was the same person who had appraised the house during the purchase, so he was fully aware of the day and night condition improvements that had been made. We were able to pull out 75% of the appraised value which made our new loan amount $93,000. The refinance put about $50,000 back into our pocket which we were then able to use for whatever we wanted. Of course we used it on real estate; the down payment on our Time-capsule House, and the repairs on the Jefferson Flip. (Stay tuned for the details on those deals.)

Here is the Brrrr Calculator with actual numbers.

Typically with the Brrr strategy the ideal situation would be that you would get all of your money back out after the refinance so that you could repeat the process with the same seed money indefinitely. We were not able to do that here, as you can see we still have $17,000 still in the deal. However, the rent minus actual expenses=$1016/mo, so within 17 months we will be break even, and everything after that will be infinite return.

First BRRRR: Buy, Rehab, Rent, Refinance, Repeat