1850's 4-unit BRRRR - Who says you can't find deals on MLS??

15 Replies

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


While I am new to this, I have never heard of an "as-complete" appraisal/refi.

Was your commercial portfolio loan using your RE portfolio as collateral?

A lender willing to loan up to 80% of the "as complete" value sounds uncommon to me, I would love to do that on a project that I found in a hot area with a 14-unit package of 5 plexes and a 4 plex for sale at about 40% of ARV.

Great job! loving the before and after pics/financial breakdown. Congrats :)

Originally posted by @Reuben H. :

While I am new to this, I have never heard of an "as-complete" appraisal/refi.

Was your commercial portfolio loan using your RE portfolio as collateral?

A lender willing to loan up to 80% of the "as complete" value sounds uncommon to me, I would love to do that on a project that I found in a hot area with a 14-unit package of 5 plexes and a 4 plex for sale at about 40% of ARV.

It's similar to the method used in a 203k but without the excessive amount of red tape. The only collateral is the subject property itself. Typically I get a lump sum of cash at the refi closing (usually enough to cover my purchase price plus some extra) and then the balance is doled out in increments as I complete the work and show receipts to the bank. Again, similar process to a 203k but without the need for FHA certified general contractors and all of that added grief - just a quick "back of the napkin" list of repairs and then receipts to confirm they have been completed. No follow-up inspections or any of that stuff.

I've done these "as-complete" loans both as what I described in this thread (cash purchase then immediately refi) but I've also directly purchased properties this way - as in I put them under contract subject to bank financing and then use this loan type to purchase. 

I still prefer to do the entire purchase and renovation with my own cash and then appraise and refinance the finished product as I tend to get more accurate value results but more often than not I don't have or don't want to tie up the cash to go that route. This is great "Plan B".

Ryan, I love the idea...so much so I just emailed a lender about doing that on the 14-unit property.

As I understand it you still need to finance the improvements out of pocket, but at least you are assured that they are wrapped into the loan ahead of time and get reimbursed...or does the bank send payment directly to the contractors?

Congratulations! That looks awesome.
Originally posted by @Reuben H. :

Ryan, I love the idea...so much so I just emailed a lender about doing that on the 14-unit property.

As I understand it you still need to finance the improvements out of pocket, but at least you are assured that they are wrapped into the loan ahead of time and get reimbursed...or does the bank send payment directly to the contractors?

Usually the initial lump sum at closing is the purchase amount plus a significant pile of additional cash - more than enough to get started on renovations. As I get receipts for completed work I submit to the bank for disbursements, which are transferred to my checking account the same day. If I stay right on top of it there's never a need to pay out of pocket. 

Originally posted by @Ryan Murdock :
Originally posted by @Reuben H.:

Ryan, I love the idea...so much so I just emailed a lender about doing that on the 14-unit property.

As I understand it you still need to finance the improvements out of pocket, but at least you are assured that they are wrapped into the loan ahead of time and get reimbursed...or does the bank send payment directly to the contractors?

Usually the initial lump sum at closing is the purchase amount plus a significant pile of additional cash - more than enough to get started on renovations. As I get receipts for completed work I submit to the bank for disbursements, which are transferred to my checking account the same day. If I stay right on top of it there's never a need to pay out of pocket. 

I'm looking at out of state properties, so I don't know if I will be able to maneuver with that level of speed...but I sure do like the idea. What type of lender did you use? Portfolio lender at a local credit union that you have a close relationship with?

Originally posted by @Reuben H. :
Originally posted by @Ryan Murdock:
Originally posted by @Reuben H.:

Ryan, I love the idea...so much so I just emailed a lender about doing that on the 14-unit property.

As I understand it you still need to finance the improvements out of pocket, but at least you are assured that they are wrapped into the loan ahead of time and get reimbursed...or does the bank send payment directly to the contractors?

Usually the initial lump sum at closing is the purchase amount plus a significant pile of additional cash - more than enough to get started on renovations. As I get receipts for completed work I submit to the bank for disbursements, which are transferred to my checking account the same day. If I stay right on top of it there's never a need to pay out of pocket. 

I'm looking at out of state properties, so I don't know if I will be able to maneuver with that level of speed...but I sure do like the idea. What type of lender did you use? Portfolio lender at a local credit union that you have a close relationship with?

 Yes, small local bank that I have a solid relationship with. 

@Reuben H. I am just curious, why are you looking out of state rather than looking in Arizona?

I am looking for cash flow more than appreciation and AZ is an appreciation market. In the search for cash flow and places that I am familiar with I just happened to find this deal that is more likely a good flip. It's a bit far to be able to execute as I would like, but you never know, I might be able to find a local that is interested in teaming up and I don't mind airplanes.

@Reuben H. I just ask because we have been finding cash flowing properties in Arizona.

Originally posted by @Shiloh Lundahl :

@Reuben H. I just ask because we have been finding cash flowing properties in Arizona.

Shiloh, sounds great! I really don't have anything against the AZ market, but I just haven't been able to find suitable rent-to-cost ratios (aka 1% rule). Maybe I am looking at it wrong. But, here are some quick examples:

AZ - 4 plex in Casa Grande for $160k with $2400/mo gross - that's 1.5%

AZ - unoccupied 4 plex in Globe for $100k that needs $10k in improvement with a rent potential of $2000/mo gross - that's less than 1%

(if you can even rent it out)

AZ - PHX metro area in general was even less encouraging. I have a friend that tells me that he is loosing money on his properties some years.

OH - 4 plex in Cincinnati for $100k with $2000/mo gross - that's 2%

OH - a duplex in Akron for $35k with $1050/mo gross - that is 3% and it has been renovated in the past 5 years and has long-term tenants

OH - 4 plex in Akron with long term tenants (10-15 years) for $82k with $1950 gross - that's 2.3% and there is room for increase in rents

What I have found is that at 2% cost-to-income, generally speaking, I can expect the property to cost 70% of the gross to keep it afloat. Less than 2% and that COC diminishes very quickly.

I would genuinely like to hear a good counter argument! If you would like MLS numbers to see what I am talking about, send me a private message.

Did you by chance set aside that cool old wall hung drainboard sink?

Great post @Ryan Murdock !

I still find interesting properties on the MLS in Minneapolis and Saint Paul.

Lately I’ve been getting in on some of the auction properties that come up on the MLS and am trying to stay in my preferred neighborhood of Northeast.

I like what you did with the four plex!

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