Attempting First BRRR

Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes

8y

I would always go for Property 2, at least until I planned not to handle most of the repairs and maintenance myself. You're a local landlord and fixer. You have to leverage your strengths for as long as you can. Let the passive investment crowd fight each other for the properties in the B-class area. Your money's in the hood.

What I mean is that yYour max cash flow properties are ALWAYS going to be in C-class neighborhoods. That's really hard for a lot of people getting into this business with no skills to really wrap their heads around. Ugly fixer-uppers in not-so-nice neighborhoods are absolutely where a handyman investor/investor-contractor wants to be if he's doing most of the work himself. Half-renovated houses where the former owner blew the renovation and left the place unsuitable for the retail market are gifts from benevolent providence to a good handyman or home improvement contractor. Drive that purchase price down mercilessly. Who else is gonna buy it? That ambitious mid-level corporate exec and his teacher wife looking for real estate investment opportunities served up on silver platters who have to pay contractors to fix everything that's wrong with them, while they fuss over choosing paint colors with names like Seagreen Mist and Wistful Meadow?

The buyer pool is wonderfully small, and you're the big fish in it.

The fact that the former owner saved you half the work should never be mentioned during negotiations. NEVER! Oh no, the former guys screwed up the renovation, it's going to cost a mint to do it right, you're going to have to bring in special people to fix all the screw-ups...milk it for all it's worth. It's your strength and their weakness. They have no blankety-blank clue. They don't want to know. They think they have better things to do than deal with the property. That's why they want to get rid of it.

My most expensive property right now is an old single-family rental that was in a C-class neighborhood which has since turned into an extremely desirable neighborhood for the young urban professional. When I first drove up the street with my wife to look at this place a few years back, we were both seriously worried. Now I look at the place and beat myself up for having so much money sunk into it and a long-term tenant I should probably get rid of but who I'm sure can't find another affordable place to live in within the area and keep sending her children to the same high school in the district. I get cards and letters every two months from trolling investors who know the score and want my property so they can flip it. As soon as those kids are gone, I'll wrap up my business with the tenant and turn that place into a palace for a retail buyer who's never heard of BiggerPockets.

Then I'll take the money and sink it into the edge of the right heroin ghetto. I'll know exactly which ghetto BECAUSE I AM A LOCAL LANDLORD AND CONTRACTOR, and that's how I get paid for staying local.

1 Reply

Brian Gallagher

OP

Investor · Lakewood, OH · Member since 2017 · 29 posts · 6 votes

8y

Thanks for the advice James! I think that is the direction that my wife and I were leaning. The neighborhood is a little rough but there are new homes and townhomes going in around it priced over 250k. There is also a police station two streets over which makes me feel a little better about the area. Any advice on what level of finishes to use? My current plan is to go “Home Depot fancy”- stock cabinets, cheap granite counters, the cheapest stainless steel appliances I can get at a scratch and dent, vinyl plank flooring (other option is to refinish the hardwoods),and wood look porcelain tile in the baths. There are a lot of young professionals moving into the newer condos and sfhs in the area, and my home would be to attract the lower end of that crowd. My experience with my previous rental in a slightly better area is that the under 30 crowd will pay a pretty good premium for what they consider high end finishes. The difficulty is that most of the rental comps in the area are pretty basic looking or beat up (although a lot of them are starting to increase rent over the $800 mark).

0 Reply

Account Closed

Flipper · Pittsburgh, PA · Member since 2017 · 218 posts · 345 votes

8y

@Brian Gallagher

ALWAYS buy near police stations in rougher neighborhoods if you can. Very good. That information seals the deal. Police stations tend to be anchors for what I call "pocket neighborhoods," little localized areas within neighborhoods that are significantly nicer than average. Knowing where those pocket neighborhoods are another advantage the local fixer has over other types of investors.

If I were you, I would do exactly what you're saying, but I'd refinish the flooring if I could save it. I know that luxury vinyl plank is very popular these days, but 3/4 in. hardwood sanded clean with three coats of oil-based poly on it will take a monstrous beating in a rental and still come out strong. The best advice I can give you as a fixer and self-maintainer is to always save solid hardwoods if you can for practical purposes.

I like the idea of your tile floors as long as you're the one laying them and you do really solid work. There are way too many crappy installers in Pittsburgh for me to feel comfortable ever contracting out that job with what I can afford to pay for it.

As far as the rest of it goes...that's all my wife's job. I have been wrong so many times and she's been right that I've just completely given up on matters of taste. It's always smarter to go with what she recommends. But since you're self-funding the repairs -- you mighty want to think about holding off on the granite for now. Do a mid-price option like Corian. If the neighborhood does explode in value and trendiness, then your next upgrade is going to be exotic granite that looks great in photos, because one exit strategy is to sell it to an investor that lives fifteen states over as a safe-bet turnkey and plow the money back into the next up-and-coming Cleveland neighborhood. Once you have granite down, it's not easy changing it out again. Corian now is less expensive and will keep you flexible.

Does this duplex have a full basement with separate laundry facilities?

4 Reply

Brian Gallagher

OP

Investor · Lakewood, OH · Member since 2017 · 29 posts · 6 votes

8y

Thanks again for the advice, unfortunately someone beat me to an offer on the house. I guess I need to act a little quicker next time!

1 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

8y

Originally posted by @Brian Gallagher:

Good Evening,

I recently sold my first property and am trying to rough out some numbers to execute a BRRR strategy with the proceeds. At this time, I am looking at two different multi-family properties in the Cleveland area and would appreciate any advice I can get.

Property 1:

Side-by-side duplex, 1,300 SF units w/ 3 beds, 1.5 baths each. Decent bones but needs new A/C for each side, new roof in the next 5 years, and upgraded finishes. I will do about half the work and hire out the rest. B class area, family-friendly neighborhood.

Purch Price: $140,000

Est repair costs: $45,000

ARV: $215,000

Est Rent: $2,300/mo

Est. Cash flow: $1,275/mo

Property 2:

Traditional up-down duplex, 1,100 SF units w/ 3 beds 1 bath each. Someone attempted a rehab but ran out of money halfway through. Roof/siding/windows have been replaced, just needs a new driveway and finish the kitchens and baths. Again, I will perform a lot of the work myself. C-class area, but in a trendy, up-and-coming neighborhood.

Purch. Price: $72,000

Est. Repair Costs: $40,000

ARV: $150,000 (with a lot of opportunity to appreciate down the road)

Est: Rent: $1,700/mo

Est. Cash Flow: $900/mo

In either scenario, I am planning on using conventional financing with 20% down and fund the repairs w/ cash. My numbers are pretty tight for Property 1, and it is possible I would need to use a HELOC if I have any overruns. My cash flow numbers only include mortgage, insurance, taxes, routine repairs, and vacancies as expenses (I will manage and maintain the property myself). I plan on holding either property for about a year after rehab to build up some cash before refinancing. Just wanted to get some input on whether I am on the right track with my numbers, and get some opinions on which would be a better deal. My analysis says that Property 1 has better cash flow, but Property 2 has more potential.

Thanks,

Brian

What are the addresses? I can throw some comps out on this thread for all to see & analyze. You can't base a buying decision like this on the rental income numbers alone. Properties like this are extremely comp driven.

0 Reply

Brian Gallagher

OP

Investor · Lakewood, OH · Member since 2017 · 29 posts · 6 votes

8y

Hey James, the property that I missed out on at was on Winchester in Lakewood, i had just gotten an agent and realized too late that it was going to auction (ended up going for 60k!). The other property had a lot more repairs than I originally thought so the numbers no longer seem to work. I sold a duplex in western Lakewood recently near Clifton, so I am very familiar what houses are going for on that side of town (It needed some big ticket repairs and I bought it when the market was low so I decided to cash out on it). I am most interested in multi family houses on the east side of Lakewood or Detroit Shoreway because those seem to be more up-and coming areas and I can still buy houses that need work for relatively cheap. I would really like to do some sfh flips eventually, but I like the idea of starting with a multi family because I would like to start off with a good cash flow base.

0 Reply

Attempting First BRRR

Attempting First BRRR

Most Popular Reply

6 Replies