Table of Contents - Character BRRRs with Elizabeth Milder & Cole Skelly
Dave Debeau [00:00:09] Hi everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast, and today, zooming in from wonderful Victoria, British Columbia. We've got a real estate power couple, Elizabeth Milda and Carl Scully. How are you guys doing today?
Elizabeth Milder [00:00:25] Oh, pretty great. Great, perfect
Cole Skelly [00:00:27] weather. Sun, sun shining in Victoria. Finally.
Dave Debeau [00:00:30] Nice, nice. That is nice. And for folks that haven't heard of you guys, Cole and Elizabeth are very experienced state entrepreneurs and they focused a lot on doing the BR strategy with character homes in Victoria. And there are a ton of character homes in Victoria that Victoria is full of characters as well. But it's definitely, definitely a beautiful, beautiful historical city, that's for sure. And it's also a very expensive real estate market. So I think I'm looking forward to diving into this, but I think this is one of the few ways that you can take a single family home in a market like Victoria and actually make it cash flow significantly. Would you guys agree?
Elizabeth Milder [00:01:17] Absolutely. And that's that's why we love it.
Dave Debeau [00:01:19] Yeah. All right. So tell us. Well, we'll get into your background in a minute. But if you would, just for the folks that aren't super familiar with the BR strategy, can you tell us what it is and why how you got into it now and why you like it so much?
Elizabeth Milder [00:01:37] Sure. So, for starters, for those that don't know what Berger stands for, it's by renovate, rent, refinance, repeat, call. And I really yeah, I guess, excel on this strategy and basically what we've been able to do using this as we find these older homes that have tremendous opportunity to add value by way of adding square footage. So we typically take a house and we'll dig out the basement to add square footage. And with that Liffe that were or that's what sweat equity that we're automatically building into the property that gives us the ability to refinance once we've gotten to the end of the project and rented it and allows us to pull the money out. The capital investment that we've put into that project at the outset, we're able to pull that money out in the end and then use that towards another property. So there's where the buy, rent or buy, renovate, rent, refinance kind of repeat element comes from.
Dave Debeau [00:02:37] Got able to recycle your your money from one deal to the next fairly, fairly quickly. So just give me an idea, you guys, because we were talking off camera a little bit, you guys focus on what you call character homes and I mistakenly called it historical properties, but there's a big difference. So tell us what what the difference is and why you focus on these character homes.
Cole Skelly [00:03:03] The city of Victoria has a house conversion regulation where you can actually take these older nineteen hundred houses and convert them into legal rental units without doing the rezoning process. So instead, it's a character home, but we're allowed to touch any part of the home. It's not a heritage home. So there we stay away from the heritage houses, heritage designation houses,
Dave Debeau [00:03:31] because heritage designation houses have to be kept in almost exactly the way they were when they were first built. Correct. I mean, after you have to be maintained at that historical level, right?
Elizabeth Milder [00:03:43] Yeah. And you're not you're not allowed to do any make any changes that will affect the exterior of the house. They basically want you to do everything within, like a shell in order so that the house, the actual what makes the house heritage is affected.
Dave Debeau [00:04:00] Exactly. All right. So a character home can still be quite an old property, but it doesn't have that designation. So you're you can pretty much do whatever you want with it short of tearing it down, I guess. Zakari Yeah. Yeah, exactly. What makes that. So you guys, if you don't mind, maybe walk us through an example of the kind of properties that you've done. So you may an idea of. What was it and how much did it cost you to buy the thing, how much did you put into it to you, the strategy? What was the after repaired value of that property? And what are things look like cash flow wise on one of your deals, if you're comfortable sharing that kind of to show people an idea of how this works?
Cole Skelly [00:04:48] Yeah, well, the last one we did was a house in Victoria and it was two two units to start to bachelor's or a bachelor and a one bedroom. And it had a finished basement. We paid or we paid for six eighty six and we paid six eighty for it. It was about a two thousand square foot house and had an unfinished basement, which was about a thousand square feet, but it was only a five and a half foot six foot basement on it.
Dave Debeau [00:05:17] So it was like a root cellar type thing.
Cole Skelly [00:05:19] It was, yeah. We were locking down in the basement like this.
Elizabeth Milder [00:05:23] Yeah. Basically used for storage and laundry at the time.
Cole Skelly [00:05:26] Yes. We paid about six six eighty for that we put
Elizabeth Milder [00:05:30] which we negotiated down by the way. So this is one thing that I'll mention because people often are scared away from deals because the price point is too high. What we've learned through a few scenarios now is, you know, don't be afraid to offend lobola if you have to, because you never know. It's always a no. And unless you ask, so
Dave Debeau [00:05:52] what was the original asking price?
Elizabeth Milder [00:05:54] I think that I think originally was like seven fifty, wasn't it?
Cole Skelly [00:05:58] What they started they started about eight fifty. So we were finishing we were finishing our previous triplex and this one was listed. So this was this house was about one hundred days on market and a real estate market that was like super hot. Nobody wanted to touch this thing was just rotted out and
Elizabeth Milder [00:06:17] it was really, really rough shape.
Dave Debeau [00:06:19] And they were out to lunch on their asking price.
Cole Skelly [00:06:21] So yeah, they were. Yeah.
Dave Debeau [00:06:25] Six eighty and then so. So you had to you had to take the basement and dig it out and create a finished product.
Cole Skelly [00:06:36] So this house we actually completely got it inside. We down basically down to the studs. We left the original nineteen hundred staircase, we left a couple of stained glass windows but it was right down to the studs and then we dug the basement out, underpin the foundation. So now it has eight foot basement and it's four units.
Elizabeth Milder [00:07:00] Yeah. Nice. And one one thing we should mention too, it sounds very romantic and oh it's like yeah we went in, we dug down the basements, we took it down to the studs. It was a long process. These projects usually take us about a year from start to finish. That includes like permitting time and stuff with the city of Victoria, which also eats up a fair amount of time. Yeah, but the other thing, too, is that the one challenge with properties of this nature is that you never really know what you're going to get. And when it comes to this property in particular, we ran into some rock in the basement that we actually had to blast. So we went from an inch or our original budget of three eighty. We ended up spending about four fifteen at the end of the day and the bulk of that additional cost was in the blasting in additional labor that we had to do in order to prepare the basement. Yeah, so that's your obviously renovation cost, purchase price. And then if you want to speak to the after repair value
Dave Debeau [00:08:01] in three years or whatever, 680. Right. But did you get it with bank financing as well as to be able to get in was 20 percent down. Twenty five percent down, something like that.
Cole Skelly [00:08:13] So we've been using a lender's construction mortgage, so we actually financed a good portion of the construction. Obviously when you're doing it for four hundred thousand dollar renovation, we don't have four hundred thousand dollars laying around after buying a seven hundred thousand dollar house. So we finance the house and our construction.
Dave Debeau [00:08:36] So all in. You're looking to help me with math. One point, one, give or take.
Elizabeth Milder [00:08:41] Yeah, just thereabouts.
Dave Debeau [00:08:43] Yeah. OK, and is that including the holding costs during that time frame as well. So all about.
Elizabeth Milder [00:08:50] Yeah, just about one of the nice things to do with the construction financing is well a couple of things. So I'll explain this a little bit at the outset of the project. We look at our overall costs and when we're submitting for financing, we're including that elevated cost, including the renovation, fitting that to the bank and getting approval for that less our twenty five percent, which was twenty five I think that we put down. And so going through that process renovating. Oh yes. And then with construction financing. So until the point that we actually get to the refinance. Our monthly payments are much reduced because that construction loan, they base it on interest only, so you're not paying towards the principal. So where is normally, you know, a mortgage of that amount would be over four grand, somewhere like five ish grand a month. We were only spending, I think at the outset it started at about eight hundred. And I think at the most up to the point of refinance, it went up to about fourteen hundred a month, somewhere thereabouts. So it just makes it a little bit easier for you to manage that, you know, before the point that you're actually getting money coming in.
Dave Debeau [00:09:58] All right. So give me give me an idea, you guys. When that thing property was rented out with the two units before, approximately, what was that generating for for revenues per month? And was there any cash flow? Probably wouldn't have been much cash flow.
Elizabeth Milder [00:10:13] No, it was it was dismal. It was like fourteen hundred bucks a month. And I believe if we remember correctly, he he didn't have a mortgage on it,
Cole Skelly [00:10:22] so, you know, forever. And it was just around a well when we got it, it was vacant possession. Actually as the people were moving out, the house was in pretty, pretty bad shape. But I think the total rents in the place at the time were like under two grand a month.
Dave Debeau [00:10:38] Yeah. All right. So you did the took about a year to get the whole thing turned around. Now you got four units. What are those units looking like? What kind of units?
Cole Skelly [00:10:49] Diovan that we have to one bedrooms that are both rented for sixteen hundred apiece. We have a two bed, one bath on the main floor that is rented for twenty one hundred. And then we have to bed one bath basement suite that is rented for nineteen nineteen hundred.
Dave Debeau [00:11:09] Nice. So do the math. So what. So now what are your gross revenues for, for this property in this fourplex.
Elizabeth Milder [00:11:16] It's just about seven grand a month.
Dave Debeau [00:11:18] Nice. Nice, nice. OK, so you're all in for about one point one and then you did the refinance. What did the bank value add up after the smoke cleared?
Cole Skelly [00:11:30] We haven't had a second appraisal, but after we had it stabilized, rented it appraised for a million three fifty the day after we finished it and had it. So we were into it for one. One.
Dave Debeau [00:11:41] Yeah. So there you go. You got two hundred and fifty thousand dollars in forced appreciation. Right. And you've got an asset that's generating seven thousand, approximately seven thousand dollars a month in revenue. What do you think the cash flow is going to look like once you've got it refinanced and, and all that kind of good stuff
Elizabeth Milder [00:12:02] on that property? It's cash in about two grand a month. Yeah. Which is pretty much what. So cool. And I whenever we're analyzing a property at the outset, we're always looking for four to five hundred dollars a month cash flow on each door. So we've just found again through the process, even watching what other people do, we found that that's a really comfortable number to absorb potential vacancies, any sort of maintenance costs, that kind of thing. Though that said, we really kind of eliminate, if not drastically reduce our maintenance because we're essentially building.
Dave Debeau [00:12:36] You know what? Yeah, you know what shape the place is in because you rebuilt it. Exactly. Pretty much like almost like a brand new property at that point. Would you say
Elizabeth Milder [00:12:47] it really is like all the mechanical, all the elect, every everything at that point has been updated. So, yeah,
Cole Skelly [00:12:53] they're back up to, well, today's building codes or two years ago. What I mean, just that one. So insulation, windows, everything. And we always can
Dave Debeau [00:13:03] only imagine what the electrical system was like. Where do you got it? I could I could only imagine what that. No good.
Elizabeth Milder [00:13:11] No good. We'll leave it at that.
Cole Skelly [00:13:13] And we always all our units are plus utilities. We always separate meter all our units. So we're not dealing with separate hydro bills and billing people for this. Billing people for that. And yeah,
Dave Debeau [00:13:26] that is good stuff. So how long have you guys been doing this strategy? And I know we're kind of running low on time. I know you guys also work on spec houses as well now, but we'll just focus on your strategy. How long have you guys been doing this for?
Elizabeth Milder [00:13:40] When did we start together? Twenty twelve. Yeah, yeah, twenty, twenty, twelve. So about ten years together now that we've been investing together
Dave Debeau [00:13:48] and previously you've been investing
Elizabeth Milder [00:13:51] on your own, correct. Yeah. So I actually had bought a couple of properties before me. I had to invest it as kind of like a silent partner with family. But before him it was the first time that I had actually ever really had my hands into a renovation
Cole Skelly [00:14:07] when she was evicted. Yeah.
Dave Debeau [00:14:11] So so you speaking about you guys, how much of this do you outsource? How much of this do you do yourselves? You have your own crew. What do you do for getting all the work done? Because it's a significant amount of work.
Elizabeth Milder [00:14:24] Yes. And I love this question because. It has been such a day like from day one when we started to now, it's very it's a very different process.
Cole Skelly [00:14:33] Go ahead. Yeah, well, one of the first the first try Plax, one of the first major projects we did, we actually done the basement. One was literally behind. Elizabeth and I are passing buckets of dirt and rock out of the window of the basement of this house. Horrible.
Elizabeth Milder [00:14:50] Absolutely horrible. We did the summer.
Cole Skelly [00:14:53] Yeah. We had a
Dave Debeau [00:14:54] relationship survived that.
Cole Skelly [00:14:56] That's a good idea. But as we progress, we hire a lot more of it out now, like the first one we did a lot of. If I had the second one, we bought a little mini excavator and hired a guy to run the excavator with a jackhammer to blast the rock out of there. But we do have a great group of trades that we work with in Victoria, and we wouldn't be where we're at today without their help.
Elizabeth Milder [00:15:24] But that's the name of the game. At the end of the day, as we outsource most things now, there's a few things that we retain. But yeah, it's one of those progressions we've learned. It usually makes more sense to pay someone else to to do a lot of these things
Dave Debeau [00:15:39] because are most definitely. But the good thing is you've got the experience, you know, if somebody is trying to screw you over because you 100 percent.
Elizabeth Milder [00:15:48] Yeah, yeah. And you can't you can't undervalue that. Our understanding of the time frame that things take and all that stuff comes from the fact that we were hands on initially.
Cole Skelly [00:16:00] We have to figure out the process.
Dave Debeau [00:16:03] So if somebody is watching this and going, hey, that sounds like a great idea, what would you recommend that they do if they want to start doing what you guys are doing and any resources, any any place that you would point people to towards to get educated about this kind of stuff?
Elizabeth Milder [00:16:21] Yeah. One thing that I think in general is like this podcast community and other podcast communities, because there is so much free information available. The other big thing and one thing that we definitely recommend to any new investor is being very realistic about what it is that you can manage and having a good understanding of what your finances are, because this is something that a lot of people aren't really in tune with. But understanding how much money you have in the bank to actually put towards a down payment on a property, understanding what you can actually qualify for, maybe looking at other avenues to help beef that qualification if need be. So whether you get a cosigner or silent partner or something like that to bring money forward and then, you know, identifying what it is you actually want to do and looking at kind of a reverse engineering type strategy where you're looking at, OK, I want to buy this house for eight hundred thousand dollars. This is the money that I have in the bank. This is what I can qualify for. And looking at how you actually get to that point, again, being realistic about where you're where you're at today, I find that or we find that a lot of people in talking about investing in property, they often they have this kind of pie in the sky idea of what it is they want to do, but they've never actually thought about what it takes to see that come to fruition. And there's a lot there's a lot of good that can come out of that process. You know, maybe you'll see another opportunity that you weren't even aware of before that you might be able to capitalize on. So it's really good to have an idea of what that is.
Dave Debeau [00:17:54] Good point. So people want to reach out to you and find out more about you guys. What should they do?
Elizabeth Milder [00:17:59] Yeah, well, we can both be reached by email at either Cool or Elizabeth at Expansion Properties dot com. Visit our website at expansion properties, dot com. And in terms of resources to we've provided this in the past and are happy to do so, but we have a pretty awesome what would you call it like spreadsheet that we use to analyze deals. We're happy to share that information too.
Dave Debeau [00:18:22] Well, that's wonderful, you guys. Congratulations on what you're up to in lovely Victoria. Keep up the good work and thank you very much for sharing some experience.
Cole Skelly [00:18:31] Awesome. Thank you. Yeah, thanks for having us.
Dave Debeau [00:18:34] All right. Call Elizabeth. Thank you. Thank you. Thank you. Everybody. See, on the next episode of. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. It is the money partner formula. You got a PDF version of investor attraction book Dotcom again, investor attraction book dot com Taika.