1850's 4-unit BRRRR - Who says you can't find deals on MLS??
This 1850's era 4-unit popped up on MLS one morning last winter for $80k. It wasn't a foreclosure but could have passed for one - vacant for years, no heating system, everything banged up.
Within 2 hours of it being listed I had viewed the property, consulted with city code enforcement, offered, counter-offered and got it under contract for $50k cash, as-is, no inspections. Granted it does help that I am my own agent but this could have been done by anyone if their agent was willing to jump.
The day after closing I initiated an "as-complete" appraisal/refi. This was done with a commercial portfolio loan where the appraiser inspected the property in "as-is" condition but placed an "as-complete" value on it based on the list of repairs I intended to make. From there, my lender was willing to loan up to 80% of the “as complete” value. No seasoning, no craziness – very straightforward.
This is a great loan for the obvious reasons of getting quick access to funds to recover the initial cash purchase plus having funds available to complete the renovations.
The downside is that it's really difficult for anyone – even veteran appraisers – to really place an accurate “as-complete” value on a property that hasn't been renovated yet. The quality of work can vary so drastically that you could have 10 different home renovators submit the same list of repairs but the difference in the finished product can vary wildly. The other thing it doesn't account for is significant changes to the scope of work once the project is underway, which is what happened here.
In this case, due to overall lack of parking (2 spaces for 4 units) I had originally planned doing only bare minimum upgrades and keeping this geared towards lower-income housing as I knew I'd only be attracting tenants that didn't have vehicles. I figured I'd be into it for a $50k purchase price plus $60k in renovation and carrying cost for a total of $110k all in. Gross rents estimated at $2400/mo. The property appraised “as-complete” for $180k. I was able to take $110k out and then took a line of credit for the remaining ~$34k. So far so good.
Shortly into the project I was able to get city approval for a curb cut and 2nd driveway installation – this was a surprise and a game changer. Since I would have adequate parking for all units I knew I could attract a much higher caliber of tenant and thus could justify better upgrades to the building.
Instead of just painting and patching kitchens and baths we gutted them and started over. Fit and finish on everything went way beyond initial projections but so did my anticipated rental income so I was okay with it. They only drawback was I ended up putting in more of my own cash as opposed to the original plan of using none of it.
By the time it was all done and rented the numbers had evolved to:
Purchase: $50k
Renovation/Carrying: $105k
Total cost: $155k
Gross Rents: $3135/mo
So I spent an extra $45k but I'm bringing in an extra $735/mo and I have a MUCH better building with very solid, high quality, low maintenance tenants. I could probably convert the LOC or re-fi again and pull my remaining cash back out but for now I'm okay letting it sit there. If I had enough cash on hand to purchase and renovate entirely before going to the bank for a re-fi that would have been a better plan - it's what I usually try and do but it just wasn't a possibility on this one. So this is far from a perfectly executed BRRRR but it's a solid deal and I'm happy with the end result.
List of upgrades includes but not limited to:
- New natural gas heating system complete with new panel heaters and thermostats throughout the building. ($25k)
- New domestic plumbing throughout ($4k)
- Wiring upgrades including new meters and service entrance to accommodate new W/D hook-ups in all units ($15k)
- Installed 2nd driveway, 20' x 37' ($3500)
- 24 new windows ($7200)
- Gutted and replaced kitchens and baths in 3 out of the 4 units.
- Refinished all hardwood floors, painted all units, fixed repaired trim, and all interior and exterior cosmetics.
- 4 new sets of appliances
BEFORE AFTER