Previously, I discussed why it’s a good practice to find profits in your own backyard rather than going far afield hoping for that big end of the rainbow score.
Well, just to show you that I’m not blowing smoke (some BiggerPockets readers even suggested I was “naïve”), I’d like to share a recent deal with you that illustrates exactly how—even in a high priced market like the greater Washington, D.C. area—there are great deals to be had. It’s also an opportunity for me to show how locating the little fish swimming around in the big pond is vital to success in any market.
So often, I’ve seen investors go the other way. They find the most prominent house in the neighborhood, fix it up, and add extra features. Then suddenly they’ve got the most lavish property in the area and can’t figure out why nobody will pay their asking price or settle for their ridiculously high rent.
As the old saying goes, water finds its own level. So if you can, let the high quality of the neighborhood uplift your property rather than trying to lift everyone else’s with yours, right?
A Great Deal in a Competitive Market
123 BRRRR Street
This house was a great find on several levels. First, it’s located very close to several shopping and recreation centers. Second, it’s walking distance from both bus and subway lines, which is a handy thing when you live in the D.C. area.
The property is a row house (aka townhouse) located in a rapidly gentrifying neighborhood that’s growing in quality and popularity. Originally, it was a 3-bed/1-bath house that had been abandoned for quite a while and was in dire need of some real rehabilitation. The final piece of the puzzle was that the owner was highly motivated.
The house is the perfect example of the little fish. It was far outdated and just not up to other homes in the neighborhood—nor to today’s more discerning buyers and renters. It was clear to me, though, that with some solid design work and proper TLC, we could turn this ugly duckling into a beautiful—and profitable—swan!
(Please refer to the as-is photographs at the end of this article that show how the house looked when I first saw it. Believe me, it was in really bad shape.)
After several rounds of negotiation, we were able to acquire 123 BRRRR Street for $350,000. I knew by examining other homes in the area that we could vastly improve the property both inside and out, and we estimated an after repair value (ARV) of $650,000. Of course, it would take somewhere in the area of $150,000 to get it there—but that’s still a built-in equity of $150,000 before we even talked to our first tenant!
For readers who don’t live in high priced markets, you may think these numbers are absolutely insane (especially after viewing the as-is photographs). Sadly, that’s just the way it is in these parts of the country.
Now, 123 BRRRR Street wasn’t just your typical new counters, new appliances, few coats of paint, and a flower bed fix and flip. She needed a bit more than the standard to beef her up into a big fish worthy of the others in the neighborhood. One thing that we knew we could do right away was to totally redesign the interior and turn this modest 3/1 into a 4/3.5.
Here’s a quick list of the improvements we made:
- Relocated and created a new kitchen.
- Created a new master bedroom and bathroom suite.
- Removed key walls on the first, second, and basement levels to both open the house up and allow us to add another bedroom and 2.5 more baths.
- Gave the kitchen what it needed to attract residents—stainless appliances, granite countertops, and ceramic tile floors.
- Installed hardwood flooring throughout the general areas and quality carpeting in the bedrooms.
- Painted the exterior and created attractive landscaping for maximum curb appeal.
From the first look to the last nail, this project took four months. That was a little longer than usual, but with so many additions and other major improvements, we wanted to do it right. And it’s paid off handsomely.
(Refer to the after photographs to see for yourself how it turned out.)
The Big Win
I’ve already mentioned how the house now has over $150,000 in equity. Remember how I said that, for me, one of my biggest profit sources is appreciation? And when you can force appreciation and instantly add huge equity to your deals, you’ve done a great job.
This home wasn’t a flip. It falls into my BRRRR philosophy—a philosophy that lets me get the best of both worlds. I get to accrue instant equity, immediate cash flow, and long-term appreciation potential. This was done by renting the property out for $4,500 per month.
I’m not sharing this with you to brag—far from it. Yet the point is that when you hear things like, “There’s no good deals in my area…” or “You’ve got to go a thousand miles away to make any money…” Well, that’s just not so.
I found this and many other diamonds right under my feet in one of the East Coast’s most expensive markets. And if I can do it, then you can, too!
There’s so much more I could say about this and every deal I do, but I’m not writing the great American BRRRR novel here. Come back soon, and I’ll share some more of my secrets and tips with you. I’ll talk about Section 8 and the high profits. I’ll share my 10 biggest flipping and BRRRR takeaways that any investor can’t afford not to know. And much more!
Talk to you soon.
Related: 27 Ways to Find Real Estate Deals
123 BRRRR Street: Before and After Photos
Any questions for me about this purchase or rehab?
Leave them in a comment below!