BRRRR Case Study Part II: The Inevitable WTF Step

This is Part II of our BRRRR Case Study, focusing on the unmentioned “WTF step” that seems to happen to new investors somewhere in the project. Let me attempt to explain:

The WTF step is the difference between going to an open house and actually buying that home. It’s the difference between test driving a car and loving it and owning that car and learning all of its flaws intimately. It’s the difference between the theoretical investment on paper and owning an investment property. Basically, the difference is the rose colored, honeymoon period vs. the gritty reality. To me it is the most overwhelming, run and hide moment I have faced in REI, which is why I am trying to explain it here.

In the case of Alberta, I missed a few things in the honeymoon period that should have been obvious if I wasn’t so excited. I want to say it is fairly normal, but that may just be me justifying my errors. So, I made 3 fairly large errors which I should have seen if I was more analytical.

Cockroaches:

I live in a fairly clean house, and I spray for bug as recommended by the label of the “Bug Shield” stuff from Home Depot. It seems to work and I have seen one cockroach in my basement in 8 years of living here. I killed him with extreme prejudice and move on with my day. So I have a hard time understanding how people live in a manner in which allows for cockroaches to co-exist with humans in the same space…

But these tenants were used to it, like it was a fact of life… Most of them were just living day to day with cockroaches in many places, but 3/4 units were overrun. One unit was occupied by a not so pleasant woman (one of the sisters from the previous article.) Happily, she moved out so I started the Cockroach Genocide.

The final unit looked abandoned and a tenant has not returned since purchase. This unit had a stank to it which was terrible and hard to pinpoint… Imagine you are at an all day, outdoor concert in August. Its asses to elbows to asses and all the asses are swampy. Now imagine sitting down with your face at ass height and inhaling deeply. Its the stank of dirty, sweaty, ass-y people. Now multiply that by 5x and we are getting close. Needless to say, the cockroaches have made a city in the kitchen. Genocide has started and I am winning, at least in the open.

I think I could have handled the cockroaches on my own, no help needed. But then I spotted them…

Bedbugs:

Cockroaches are a walk in the park compared to the WTF factor of bedbugs. Why? Because you don’t usually take cockroaches home to your family, because roaches don’t feed on humans, and they usually stay away from your bed. The cost of getting bedbugs out of your home is sky-high, so the terror of bringing them home to my family is very real. 2/4 units have confirmed bedbug sightings. I am assuming the others have them but are missing furniture for them to play on…

The cost to get rid of both infestations was around $2500. That included a full building heat treatment, where they used industrial furnaces to kill the bedbugs by heating the units to 140 F, and wrapping the singled remaining bed in a bedbug repellent cover. After that they sprayed every other weak for cockroaches. It has been very effective so far.

Front Doors:

The third thing I missed which should have been kinda obvious is the front doors. From the street they look pretty standard. Fresh coat of paint and curb appeal goes way up (currently poop brown). Upon closer inspection, several of the glass panes have been replaced with plexiglass and the trim in beat to hell in places. One door is even partially wood putty due to severe breakage around the doorknob. All things I should have seen but for the rose colored glasses on an excited investor just looking at the possibilities, not the pitfalls.

It will costs at least $200/ door to replace them myself.

So, a word of warning when you are getting into REI: take a breath and take a look at the problem to solve, not just the potential for income. The BRRRR strategy hinges on assessing the rehab of the building and sticking to the budget. The rose colored glasses are detrimental to the proper building of a budget, so keep them in mind as you start your journey.