LESSONS LEARNED FROM MY 3RD BRRR.
I invest in central Connecticut where the market is fairly saturated with other investors and taxes are extremely high so we have some obstacles to overcome. That being said, I just refinanced a property, completing my third BRRR in the market, leaving minimal dollars tied up in the property - I wrote the story but it was so long, so here's the stats, fun facts, and lessons learned. Sorry, it's still long!
- The property was a HUD property, single family 3/2 with full finished basement in a solid B neighborhood, that was available for bidding only by owner occupants.
- It was listed at 85k, needed about 12k in work and ARV was 140-150k.
-I saw it during the period when only owner occupants could bid so I was ready to submit an offer the very day the owner occupant period expired. (I actually didn't get the property - an owner occupant came in and bid higher. Bummer. Until a few days later when they didn't get their paperwork in right away and lost the contract and I got a very unexpected email a few days later saying my offer was accepted. Game on. LESSON LEARNED - opt to have your offer kept as an alternative if the initially accepted offer doesn't work).
-I used hard money to fund the purchase and rehab and used a private lender for the 20% down. I wasn't out of pocket anything but given the cost of money and refi costs, I know I'd be leaving a little bit in at the end of the day. LESSON LEARNED - your lender is your partner. Since this was my first time working with my lender, he asked to see my quotes and referred me to get a second quote, saving me 5k in a tile job that I wouldn't have picked up on since the quote came from a guy that's worked with both me and my parents in the past. Loyalty is brief.
- I rehabbed the property in 2 weeks and I got a great tenant right away so I never had any loan payments while the property was vacant. FAVORITE TIP - I let my tenants choose between 1 or 2 options of certain renovation items like paint colors, vanities, lights. They're all items I'll be fine with when they leave but it's a huge incentive to the tenants to let them feel like they're part of the design process and makes them more invested, treating the house like their home.
- I just put permanent financing on it. I went with a conventional 30 year loan in an LLC, my PITI is 1050, tenant pays 1600, it appraised for 143k which I think is low since the identical house next door sold for 170k (LESSON LEARNED - always be very conservative with the appraised value. I could've easily estimated it would've sold for higher but I saw one comp that I considered an outlier but thankfully still used to in my analysis to get 140-150K ARV.)
- Final numbers: I've left about 4k in the deal for a COC return (my favorite metric) at 85% and I have 35k in equity! This isn't a cash cow, but it's a base hit and good experience. I'll take it!
Now on to the next one, I close on my 4th next week. Stay tuned.
